LIBRARY 

OF    THE 

UNIVERSITY  OF  CALIFORNIA. 
Clots 


BY  CHARLES  A.  CONANT 

A  History  of  Modern  Banks  of  Issue 
With  an  Account  of  the  Economic  Crises  of 
the  Present  Century 
Second  Edition.     8vo.     $3.00. 

Wall  Street  and  the  Country 

A  Study  of  Recent  Financial  Tendencies 
i2mo.    $ 

G.  P.  PUTNAM'S  SONS 

NEW  YORK  LONDON 


Wall  Street 

and 

The   Country 

A  Study  of  Recent  Financial  Tendencies 


By 
Charles  A.  Conant 

Author  of  "  A  History  of  Modern  Banks  of  Issue,"  etc, 


G.  P.  Putnam's  Sons 

New  York  and   London 

Gbe  ftntcherbocber  press 

1904 


COPYRIGHT.  1904 

BY 
CHARLES  A.  CONANT 

Published,  July,  1904 


Ube  Knickerbocker  press,  Hew 


PREFACE 

THE  essays  contained  in  this  volume 
were  written  for  the  purpose  of  setting 
forth  the  magnitude  of  the  problems 
presented  by  the  modern  tendency  to 
capitalization  and  of  removing  misappre- 
hensions on  the  subject  which  seem  to 
have  obtained  a  lodgment  in  the  minds 
of  a  certain  portion  of  the  public.  In 
a  country  like  the  United  States,  whose 
phenomenal  expansion  has  been  the  ad- 
miration and  envy  of  competent  foreign 
observers,  it  has  been  inevitable  that  this 
expansion  should  create  serious  new  prob- 
lems and  require  many  new  experiments 
in  regard  to  the  organization  of  the 
money  market,  the  powers  of  corpora- 
tions, and  the  relations  of  the  latter  to 
the  State. 

There  is  little  reason  to  doubt  that  in 
the  long  run  these  problems  will  be 
solved  by  the  American  people  with  their 
iii 


iv  Preface 

usual  sobriety  and  good  sense.  It  is  to 
be  regretted,  however,  that  a  degree  of 
passion  has  been  imported  into  their 
discussion  which  tends  to  hinder  such  a 
solution  rather  than  to  hasten  it.  Many 
organs  of  public  opinion,  even  among 
those  which  have  been  credited  with  con- 
servatism and  sound  economic  views,  have 
been  swept  along  upon  a  current  of 
popular  agitation  in  favor  of  the  exten- 
sion of  the  power  of  the  State  in  a  man- 
ner radical  in  itself  and  far  beyond  any 
previous  exercise  of  it  sanctioned  by  ex- 
perience or  by  American  political  ideals. 
The  denunciation  of  the  stock  exchange, 
one  of  the  most  necessary  functions  of 
modern  industry,  and  the  abuse  of  large 
corporate  interests  have  become  undis- 
criminating  and  extreme,  even  where  in 
the  minds  of  those  who  have  made  them 
many  limitations  and  reservations  un- 
doubtedly existed.  These  expressions 
have  tended  to  stimulate  a  degree  of 
popular  prejudice  which  militates  against 
a  dispassionate  solution  of  our  new  na- 
tional problems. 


Preface 

There  seems,  under  present  conditions, 
to  be  too  wide  a  chasm  between  men  of 
action  and  men  of  thought.  The  former, 
impatient  of  exaggerated  and  destructive 
criticism  of  their  projects,  and  especially 
of  their  motives,  and  little  accustomed  to 
spending  their  time  in  the  refinements  of 
literary  discussion,  have  allowed  misrep- 
resentations to  pass  unchallenged,  be- 
cause they  have  not  discovered  in  many 
of  the  organs  of  public  opinion  a  dispo- 
sition to  weigh  their  actions  impartially 
or  to  discriminate  between  the  scrupulous 
and  the  unscrupulous  in  the  financial  world. 

Misled  by  this  silence,  those  who  ad- 
dress the  subject  from  the  side  of  editorial 
chairs  and  magazine  articles,  have  be- 
come more  violent  in  their  criticism  of 
the  stock  exchanges,  the  financiers,  and 
the  industrial  combinations,  and  have 
seemed  to  forget,  even  where  they  would 
not  directly  deny,  that  a  large  element 
of  good  must  result  to  the  country  from 
the  economic  experiments  which  are  now 
being  tried.  They  seem  to  forget  also 
that  by  treating  large  corporate  interests 


vi  Preface 

as  outlaws,  unworthy  of  a  fair  hearing  in 
the  court  of  public  opinion,  they  only 
tend  to  increase  the  tendency  which  they 
deplore, — the  tendency  that  corporations, 
thus  driven  to  bay,  may  resort  to  ques- 
tionable and  illegal  means  for  self-pre- 
servation. 

It  is  the  aim  of  this  book  to  set  forth 
in  some  degree  the  operation  of  economic 
principles  in  the  financial  world  and  the 
dangers  of  proceeding  too  rapidly  and 
too  rashly  in  extending  the  area  of  Federal 
intervention  into  fields  heretofore  reserved 
for  the  States  and  in  fettering  that  free- 
dom of  action  and  of  initiative  which  has 
been  one  of  the  essential  causes  of  our 
national  progress.  It  is  not  proposed  to 
present  a  final  solution  of  all  the  prob- 
lems dealt  with.  They  are  subjects 
which  are  not  likely  to  be  exhausted  this 
year  nor  the  next, —  perhaps  not  within 
the  time  of  men  now  living.  It  is  pro- 
posed here  simply  to  submit  on  certain 
phases  of  these  subjects  a  few  considera- 
tions which  have  thus  far  been  more  or 
less  obscured. 


Preface  vii 

The  discussion  in  regard  to  putting 
China  upon  the  gold  standard  is  an  out- 
growth of  the  work  of  the  Commission 
on  International  Exchange,  of  which  the 
author  has  the  honor  to  be  a  member. 
The  purposes  of  this  commission  have  not 
been  fully  understood  in  some  quarters, 
as  the  natural  result  of  the  highly  tech- 
nical character  of  many  of  the  questions 
with  which  it  has  had  to  deal;  but  the 
members  of  the  commission  themselves 
have  never  doubted  that  the  country 
would  support  their  efforts  to  bring  the 
silver-using  countries  to  the  gold  stand- 
ard by  the  most  practicable  and  efficient 
means  attainable  under  existing  condi- 
tions. Already  several  of  the  countries 
of  South  America  have  followed  British 
India  and  the  Philippines  in  the  adoption 
of  a  gold  exchange  standard  similar 
to  that  here  recommended  for  China, 
and  much  progress  has  been  made  by 
Professor  Jeremiah  W.  Jenks  of  the 
commission  in  persuading  Chinese  offi- 
cials of  the  economic  importance  of  the 
adoption  of  a  sound  monetary  system. 


viii  Preface 

Whether  immediate  success  is  attained 
or  not,  the  work  of  the  commission  has 
undoubtedly  hastened  the  day  when  com- 
mercial transactions  everywhere  will  be 
conducted  upon  a  gold  basis. 

I  desire  to  acknowledge  my  obliga- 
tions to  the  publishers  of  the  Atlantic 
Monthly,  the  North  American  Review, 
the  International  Quarterly,  and  the  Re- 
view of  Reviews  for  their  permission  to 
use  the  articles  which  are  reprinted.  I 
am  also  under  special  obligations  to  the 
owners  of  the  "  Consolidated  Library," 
the  Emerson  Press  of  New  York,  for 
permission  to  use  the  chapter  on  "  The 
Economic  Progress  of  the  Nineteenth 
Century,"  which  was  written  especially  for 
that  publication.  This  chapter  and  all 
others  have  been  carefully  rewritten,  in 
order  to  bring  the  statistical  matter  up  to 
date  and  to  otherwise  improve  them  as 
far  as  possible. 

CHARLES  A.  CONANT. 

NEW  YORK,  38  Nassau  St. 
July  i,  1904. 


CONTENTS 

CHAPTER  PACK 

I. — THE    FUTURE    OF    UNDIGESTED   SE- 
CURITIES       i 

II. — THE  TRUSTS  AND  THE  PUBLIC          :       40 

III. — THE   FUNCTION  OF  THE  STOCK  AND 

PRODUCE  EXCHANGES         .        .      83 

IV. — THE    ECONOMIC    PROGRESS    OF    THE 

NINETEENTH  CENTURY       .         .117 

V. — PUTTING  CHINA  ON  THE  GOLD  STAND- 
ARD      171 

VI. — THE  GROWTH  OF  TRUST  COMPANIES    205 
INDEX  .  237 


ix 


WALL  STREET  AND  THE 
COUNTRY 


THE    FUTURE    OF    UNDIGESTED    SECURITIES 

THE  perturbations  to  which  prices  have 
been  subjected  on  the  New  York  Stock 
Exchange  during  the  past  year  have 
naturally  caused  revulsions  of  feeling 
among  those  who  have  suffered  from 
them,  and  much  questioning  of  the  wis- 
dom of  some  of  the  recent  operations  of 
prominent  American  financiers.  It  is  a 
familiar  aphorism  that  "  Wall  Street "  is 
very  popular  in  periods  of  ascending 
prices,  and  is  very  unpopular  in  periods  of 
declining  prices.  The  public  often  seem 
to  forget  that  quotations  in  Wall  Street 
are  only  the  mirror  of  their  own  estimate 


2        Wall  Street  and  the  Country 

of  the  value  of  securities,  and  that  most 
financiers  would  be  as  well  pleased  as 
outsiders  if  they  could  warp  this  mirror 
to  give  the  reflection  of  a  constantly  as- 
cending value  to  the  properties  which 
they  control.  There  are  many  lessons 
to  be  learned  from  recent  experiences, 
one  of  the  most  obvious  being  that  the 
outsider  should  not  enter  the  stock  mar- 
ket in  the  gambling  spirit,  but  only  for 
investment,  and  then  only  when  he  has 
made  a  careful  study  of  values  of  prop- 
erties and  their  earning  power,  and  of  the 
conditions  which  affect  the  market. 

The  creation  of  industrial  companies 
during  the  past  five  years  and  the  as- 
cending prices  of  their  securities  until 
within  the  past  year  have  written  a  new 
chapter  in  the  history  of  the  world's  ef- 
fort to  work  out  its  economic  destiny.  It 
has  afforded  a  new  illustration  of  the 
law  of  the  survival  of  the  fittest.  Prac- 
tically every  form  of  financial  enterprise 
has  had  to  go  through  the  same  birth- 
pangs  when  it  was  a  new  and  untried 
project ;  and  only  those  features  of  it 


Our  Undigested  Securities       3 

have  survived  which  have  been  found  to 
possess  real  economic  value.  It  is  usually 
those  who  initiate  the  new  methods  who 
take  the  greater  risks.  If  their  projects 
will  not  stand  the  test  of  competition, 
they  carry  down  their  projectors  with 
them  to  disaster ;  if  they  succeed,  they 
sometimes  confer  rich  rewards  upon  the 
far-sighted  and  venturesome  pioneer  ;  but 
in  the  latter  case  they  render  a  net  eco- 
nomic service  to  the  community.  It  is 
the  experience  through  which  the  new 
methods  of  finance  have  passed,  and  that 
through  which  they  are  yet  to  pass,  which 
is  to  determine  whether  they  have  in  them 
elements  of  survival. 

The  mechanism  of  modern  finance 
has  been  devised  piece  by  piece  to  meet 
the  constantly  growing  demand  for  more 
efficient  methods  of  giving  mobility  to 
capital.  By  mobility  is  meant  facility  for 
transferring  capital  promptly  and  without 
loss  from  one  person  to  another.  It 
was  the  use  of  money  which  primarily 
made  possible  the  transfer  of  capital 
when  trade  began  to  emerge  from  the 


4       Wall  Street  and  the  Country 

condition  of  barter.  It  has  been  the  func- 
tion of  modern  commerce  and  finance, 
as  capital  grew  in  volume,  to  devise  new 
means  of  transferring  it  from  place  to 
place  and  from  industry  to  industry. 
Hence  has  arisen  the  complicated  but 
symmetrical  structure  of  deposit  bank- 
ing, note  issue,  the  joint  stock  company, 
the  negotiable  security,  the  produce  and 
stock  exchanges,  the  bankers'  clearing 
house,  the  stock  exchange  clearing  house, 
the  cable  transfer  for  credit,  and  the  arbit- 
rage of  stock  and  exchange  transactions,  by 
which  the  change  of  a  fraction  of  one  per 
cent  in  the  rate  indicating  the  demand 
for  credit  in  one  market  would  put  at  its 
command  the  surplus  resources  of  other 
markets. 

This  great  fabric  has  been  rendered 
necessary  by  the  growth  of  the  fund  of 
capital  seeking  investment.  This  growth 
in  the  volume  of  capital  has  been  the  phe- 
nomenon of  our  generation.  It  has  been 
a  growth  of  astonishing  rapidity,  because 
the  increase  in  the  investment  fund  has 
been  much  more  rapid  than  the  increase 


Our  Undigested  Securities       5 

in  the  total  capital  of  the  community. 
This  has  resulted  from  a  simple  process 
of  mathematical  increment.  If  an  agri- 
cultural producer  in  1850  had  an  annual 
producing  power  which  might  be  expressed 
by  $350,  of  which  $300  was  necessary  to 
supply  his  actual  physical  necessities,  he 
would  have  a  surplus  of  $50,  to  be  made 
a  part  of  the  investment  fund  of  the  com- 
munity. If  ten  years  later,  in  1860,  he 
had  increased  his  producing  power  by  one 
seventh,  his  total  annual  product  would 
be  $400;  but  the  effect  would  be  felt 
upon  the  investment  fund  of  the  com- 
munity, not  merely  by  the  increase  of  one 
seventh,  or  about  15  per  cent,  in  his  total 
product,  but  by  an  increase  of  100  per 
cent  in  the  net  product.  Assuming  that 
his  actual  needs  were  still  supplied  by 
$300,  he  would  have  $100  for  investment 
where  he  formerly  had  $50.  If  by  1880 
his  annual  producing  power  had  increased 
still  further  by  one  fourth  part  of  its  effi- 
ciency in  1860  to  a  total  of  $500,  the 
surplus  funds  seeking  investment  in  the 
market  would  have  risen  by  another  100 


6        Wall  Street  and  the  Country 

per  cent  within  twenty  years,  or  by  400 
per  cent  within  thirty  years. 

These  conclusions,  based  upon  hypoth- 
esis, are  sustained  by  the  evidence.  The 
increase  in  the  capital  employed  in  man- 
ufactures over  and  above  the  normal  in- 
crease in  proportion  to  population  is  one 
of  the  gauges  of  the  increased  fund  of 
saving  in  the  community.  This  increase 
was  from  $2,118,208,769  in  1870  to 
$9,831,486,500  in  1900.  This  increase  of 
more  than  $7,700,000,000  in  manufactur- 
ing capital  since  1870  is  paralleled  by  the 
increased  application  of  capital  in  another 
direction, — the  construction  and  equip- 
ment of  railways.  The  total  liabilities  of 
American  railways,  chiefly  upon  their  cap- 
ital stock  and  funded  debt,  increased  from 
$3,784,543,034  in  1873  to  $14,270,301,564 
in  1902.  If  the  increase  had  been  only  in 
proportion  to  population,  the  total  invest- 
ment at  the  present  time  would  be  only 
about  $7,000,000,000,  leaving  a  residue  of 
an  additional  $7,000,000,000  as  a  result 
of  the  increased  producing  power  of  the 
people  of  the  United  States  under  modern 


Our  Undigested  Securities       7 

conditions.  The  two  items  of  manufac- 
turing capital  and  railway  investment  thus 
account  for  an  investment  fund  of  $18,- 
000,000,000,  which  has  been  accumulating 
during  the  past  generation,  and  these  are 
only  illustrations  of  the  great  fund  of 
saved  capital  seeking  investment  which 
has  been  accumulating  in  recent  years  in 
every  field  of  productive  industry. 

Capital  available  for  investment  is  sub- 
ject to  the  law  of  supply  and  demand. 
In  this  respect,  it  does  not  differ  from 
commodities  of  a  more  specific  character. 
Other  things  being  equal,  two  important 
elements  operate  upon  the  price  paid  for 
an  investment, — its  safety  and  the  net 
return  paid  in  interest  or  dividends. 
A  high  degree  of  safety  will  contribute 
toward  raising  the  price  of  an  investment, 
but  this  rise  in  price  will  render  it  less 
attractive  upon  the  other  side  by  reducing 
the  return  upon  it.  For  the  owner  of  an 
investment  security,  and  especially  for  him 
who  has  it  to  sell,  a  scarcity  of  safe  securi- 
ties and  a  rise  in  their  price  are  acceptable 
and  desirable.  For  the  owner  of  capital 


8       Wall  Street  and  the  Country 

seeking  investment,  however,  an  excess 
of  such  capital  in  the  market  and  a  high 
price  for  securities  are  an  injury,  because 
they  reduce  the  earning  power  of  his  cap- 
ital, in  whatever  particular  securities  he 
may  invest  it.  To  meet  his  needs,  new 
demands  for  capital  must  be  found  from 
time  to  time,  equal  to  the  amount  of 
capital  created. 

To  find  such  openings  for  investment 
is  the  business  of  the  financier  and  pro- 
moter. He  found  them  early  in  the  nine- 
teenth century  without  difficulty,  because 
new  demands  for  capital  were  springing 
up  faster  than  they  could  be  met.  When 
society  is  in  a  stationary  state, — that  is, 
when  there  are  no  important  new  inven- 
tions or  changes  in  social  conditions,— 
saved  capital  accumulates  faster  than 
opportunities  for  secure  and  profitable 
investments  present  themselves.  The 
tendency  of  such  a  condition  is  to  correct 
itself  by  creating  new  wants,  and  hence 
invoking  a  demand  for  the  capital  to  pro- 
vide the  mechanism  to  supply  them  ;  but 
this  tendency  has  not  prevented  on  sev- 


Our  Undigested  Securities       9 

eral  occasions  the  serious  congestion  of 
savings  beyond  effective  demand  and  a 
consequent  fall  in  the  rate  of  interest. 

In  modern  times,  more  than  in  those 
more  remote,  there  has  been  a  frequent 
tendency  to  the  accumulation  of  saved 
capital  temporarily  beyond  the  legitimate 
demand  for  it  for  the  creation  of  new  en- 
terprises. The  eminent  French  econo- 
mist, Paul  Leroy-Beaulieu,  in  discussing 
this  subject  in  U Economists  Franfais  of 
January  28,  1899,  calls  attention  to  the 
fact  that  there  were  interruptions  in  the 
downward  course  of  interest  when  steam 
came  to  be  generally  employed  as  a  mo- 
tive power  between  1850  and  1865,  and 
again  after  the  great  destruction  of  capital 
in  the  Franco- Prussian  war.  But,  he  de- 
clares,— 

"  after  each  of  these  interruptions,  the  rate  of  in- 
terest again  tended  to  decline  to  a  level  lower  than 
before  ;  so  that,  in  taking  as  the  point  of  departure 
the  beginning  of  the  last  quarter  century,  or  that 
of  the  last  half  century,  or  that  of  the  last  century, 
—  the  year  1874  or  the  year  1850, —  it  may  be  noted 
that  the  rate  of  interest  has  considerably  fallen,  not 


io      Wall  Street  and  the  Country 

in  a  straight  line,  it  is  true,  but  in  a  broken  line,  and 
that  never  in  our  history  was  it  as  low  as  in  1897." 

One  of  the  best  proofs  of  this  super- 
abundance of  capital  in  the  market  about 

1897  was  the  great  number  of  cases  in 
which  governments  and  stock  companies 
successfully  sought  to  convert  old  obliga- 
tions on  which  they  were  paying  a  high 
rate  of  interest  into  new  ones  paying  a  low 
rate  of  interest.     Great  Britain  refunded 
her  consolidated  debt  in  1888  at  two  and 
three  quarters  per  cent,  and  in  1897  and 

1898  the  quotations  of  these  new  issues 
reached    112,   and  even   a   maximum    of 
1 13^.     The  great  Prussian  conversion  was 
operated   during    1897,    and    applied    to 
$850,000,000   of    consolidated    four   per 
cent   securities.     These   four    per    cents 
were  quoted  at  104.5,  and  the  three  and  a 
half  per  cents  were  quoted  at   104.2    in 
October,   1896.     The  three  per  cent  obli- 
gations issued  in  1890,  and  then  quoted 
at  86.5,  reached  par  on  July  5,   1895,  and 
stood  at  99.6  on  October  5,  1896.      Herr 
Miquel,    the     Prussian    Minister,    in     an- 
nouncing his  project,  recalled  the  fact  that 


Our  Undigested  Securities      1 1 

in  1894  France  had  converted  her  four 
and  a  half  per  cents  into  three  and  a  half 
per  cents ;  that  Sweden,  Norway,  Lux- 
embourg, Zurich,  Saxe-Gotha,  Wurtem- 
burg,  and  Bavaria  had  converted  four  per 
cent  into  three  and  a  half  per  cent  securi- 
ties ;  and  that  Denmark,  Belgium,  Hol- 
land, Bremen,  and  Berne  had  converted 
three  and  a  half  per  cents  into  three  per 
cents,  not  to  speak  of  the  great  Russian 
conversion  of  five  per  cents  into  four  per 
cents. 

In  the  United  States,  in  spite  of  the 
fact  that  a  new  country  usually  makes 
large  demands  for  capital,  the  supply  of 
it  tended  to  exceed  the  legitimate  and 
effective  demand  down  to  1897.  The 
fact  that  this  increase  in  the  supply  had 
greatly  reduced  its  capacity  to  earn  inter- 
est is  plainly  indicated  by  the  facts  set 
forth  in  the  spring  of  1903  by  Professor 
Meade1: 

"For  the  last  thirty  years  the  investment  rate 
of    interest    has   been    steadily    sinking.       In    the 
early  Seventies  seven  per  cent  railway  bonds  were 
1  Trust  Finance,  p.  243. 


12      Wall  Street  and  the  Country 

common.  In  the  next  decade  these  were  largely  re- 
placed by  five  per  cent  bonds,  and  in  recent  years 
three  and  a  half  per  cent  bonds  have  been  generally 
issued  by  railway  companies.  At  the  same  time 
that  the  interest  rate  was  falling,  the  price  of  a 
$1000  bond  increased.  In  the  Seventies  railway 
companies  often  paid  ten  per  cent  for  money.  At 
the  present  time  three  and  a  half  per  cent  is  the 
ordinary  rate." 

It  is  clear  that  this  great  accumulation 
of  capital  would  be  employed  with  great 
difficulty  but  for  the  organization  of  a 
system  of  transferring  it  readily  from 
hand  to  hand  and  place  to  place.  If 
every  one  who  saved  was  compelled  to 
employ  his  savings  under  his  own  per- 
sonal care  and  direction  in  order  to  make 
them  fruitful,  many  difficulties  would  arise 
and  serious  blunders  would  be  made. 
Large  savings  would  seem  in  the  natural 
course  of  events,  therefore,  to  have  sug- 
gested the  organization  of  means  of  em- 
ploying them  without  imposing  the  task 
directly  upon  each  individual  who  had 
made  savings.  This  has  been  the  case 

rin  advanced  commercial  society,  but  has 
not  been  the  case  in  undeveloped  society. 


Our  Undigested  Securities      13 

The  economic  efficiency  of  Europe  and 
America  is  due  in  a  large  degree  to  the 
fact  that  saved  capital  does  not  repose  in 
idle  hoards,  but  is  transferred  as  fast  as  it 
is  saved  into  hands  which  are  able  to  put 
it  to  productive  use.  In  all  civilized  coun- 
tries the  mechanism  of  credit  has  now  at- 
tained a  considerable  degree  of  efficiency, 
but  this  efficiency  varies  to  a  marked  ex- 
tent from  country  to  country. 

Among  the  methods  of  putting  capital 
into  negotiable  form,  these  may  be  enum- 
erated :  attracting  deposits  to  banking 
institutions  ;  the  organization  of  stock 
companies  for  banking  and  other  large 
enterprises  ;  the  organization  of  railroad 
companies  ;  the  capitalization  of  industrial 
enterprises  as  stock  companies  ;  the  diver- 
sification of  banking  methods  and  of  the 
forms  of  security  investment. 

It  is  not  necessary  here  to  dwell  upon 
the  expansion  of  banking  in  its  simpler 
forms.  This  has  been  more  obvious  to 
the  ordinary  observer  "as  a  means  of  ac- 
cumulating and  transferring  capital  than 
some  of  the  other  features  of  the  modern 


14      Wall  Street  and  the  Country 

organization  of  credit.  Next  in  order  to 
banking  deposits  as  a  part  of  the  new 
mechanism  of  finance  conies  the  joint- 
stock  company.  A  joint-stock  company 
affords  the  means  for  dividing  the  owner- 
ship of  properties  in  such  a  way  that,  on 
the  one  hand,  an  individual  of  small 
means  may  become  part  owner  in  a  great 
enterprise,  and,  on  the  other  hand,  enter- 
prises may  be  successfully  carried  out,  of  a 
magnitude  which  could  not  well  be  under- 
taken by  a  single  individual.  The  crea- 
tion of  share  companies  divides  the  risk 
of  an  undertaking  among  many  persons, 
and  places  the  enterprise  beyond  the  acci- 
dents of  a  single  existence  by  giving  it  a 
fictitious  body  dowered  by  law  with  con- 
tinuing life. 

When  these  properties  are  listed  on  the 
stock  exchange  they  are  afforded  a  gen- 
eral market,  in  which  it  is  easy  to  obtain  a 
definite  test  of  their  value.  A  mill  or  a 
factory  which  is  in  private  hands  is  salable 
or  not  according  to  individual  and  local 
circumstances.  When  not  converted  into 
the  form  of  shares,  a  small  property  of 


Our  Undigested  Securities      15 

this  character  has  a  market  which  is  nar- 
row and  uncertain.  The  property  may 
pay  a  fair  dividend  upon  the  capital  in- 
vested or  upon  the  cost  of  replacement, 
but  unless  it  happens  to  attract  the  atten- 
tion of  a  capitalist  who  is  also  an  expert 
in  the  same  line  of  industry,  it  cannot  be 
sold  at  the  will  of  the  owner.  When, 
however,  it  is  a  part  of  a  property  which 
comprises  many  other  mills,  and  this 
property  is  represented  by  bonds,  pre- 
ferred stock,  and  common  stock,distributed 
among  a  multitude  of  owners  and  listed 
on  the  stock  exchange,  then  it  is  in  the 
power  of  the  individual  owner  to  part 
with  his  property  at  will  at  the  quotations 
of  the  market. 

One  of  the  natural  consequences  of  the 
abundance  of  capital  seeking  investment 
is  the  tendency  to  produce  new  forms  of 
securities.  The  evidence  of  this  is  afforded 
by  the  great  variety  of  securities  which 
are  now  at  the  command  of  the  investor  in 
the  principal  markets  of  Europe  and  Amer- 
ica. The  first  form  of  investment  offered 
in  the  stock  markets  was  government 


1 6     Wall  Street  and  the  Country 

obligations.  These  represented  capital 
taken  from  the  community  and  often 
applied  in  a  manner  which  was  not  eco- 
nomic, for  the  purposes  of  war  or  prepa- 
rations for  war.  Then  came  the  primitive 
form  of  the  stock  company,  which  was 
simply  the  issue  of  shares  establishing  a 
common  and  divisible  right  in  a  large 
property.  It  has  remained  for  recent 
years  to  develop  the  preferred  share,  the 
mortgage  bond,  income  bonds,  convertible 
bonds,  debentures,  and  many  other  forms 
of  obligation. 

These  various  types  of  securities  offer 
a  variety  of  investment  which  permits 
each  investor  to  choose  among  them  ac- 
cording to  his  individual  valuation  of  the 
relative  advantages  of  risk  with  large  re- 
turns, security  with  small  returns,  prompt 
returns  or  ultimate  profit.  The  mortgage 
bond  of  a  first-class  railway,  varying  little 
under  ordinary  conditions  in  its  market 
quotations  because  it  pays  a  fixed  income, 
is  the  most  secure  investment  after  the 
government  bond,  and  the  most  appro- 
priate for  the  investment  of  trust  funds. 


Our  Undigested  Securities      17 

The  preferred  stock  of  a  well-established 
investment  enterprise  offers  a  fixed  return 
with  perhaps  a  higher  degree  of  risk,  and 
is,  therefore,  likely  to  pay  a  larger  return 
in  relation  to  its  price  than  the  bond. 
The  convertible  bond  offers  a  high  degree 
of  security,  with  the  additional  allurement 
of  admitting  the  bondholder  to  a  share  in 
the  expanding  profits  of  the  preferred 
shareholder  when  the  price  of  stock  rises 
above  the  price  of  the  bond. 

Every  form  of  investment  which  proves 
more  attractive  to  a  certain  class  of  in- 
vestors than  previous  forms  adds  to  the 
means  for  drawing  capital  out  of  hoards 
and  private  hands  and  putting  it  at  the 
command  of  the  community.  If  bonds 
and  ordinary  shares  prove  unattractive  to 
a  certain  type  of  investor,  then  the  market 
where  only  those  forms  of  investment  are 
available  does  not  afford  the  highest  facili- 
ties for  drawing  hoarded  capital  from  idle- 
ness into  utilities.  The  device  so  frequent 
in  the  organization  of  American  industrial 
corporations,  by  which  the  assured  earning 
power  is  capitalized  as  preferred  stock  and 


i8      Wall  Street  and  the  Country 

the  contingent  profits  of  bankers  and  pro- 
moters are  converted  into  common  stock, 
to  be  sold  for  what  it  will  bring  or  laid 
away  until  it  earns  dividends,  has  not 
until  recently  been  available  for  the  French 
financier.  Hence  the  inducement  was 
lacking  to  unify  and  strengthen  French 
industry  by  consolidating  old  companies 
and  putting  the  best  equipment  and  most 
far-sighted  management  at  the  command 
of  new  companies. 

The  countries  of  Europe,  especially 
those  of  the  Continent,  have  much  to 
learn  from  America  in  diversifying  the 
forms  of  investment  so  as  to  put  saved 
capital  to  its  most  productive  use ;  but 
America  has  also  something  to  learn  from 
Europe.  We  have  done  much  more  than 
France  and  Germany  to  draw  the  small 
capitals  of  the  masses  into  our  commer- 
cial banks  ;  but  they  have  developed  forms 
of  investment  which  we  have  not  tried,  or 
which  we  have  not  managed  with  prudence. 

A  striking  instance  of  the  diversification 
of  banking  methods  which  has  thus  far 
failed  to  obtain  a  firm  footing  in  America 


Our  Undigested  Securities      19 

is  the  mortgage  loan  bank.  The  purpose 
of  such  an  institution  is  to  give  to  the 
ownership  of  real  estate  something  of  the 
transferability  and  divisibility  of  other 
property.  This  is  accomplished  by  con- 
verting the  aggregate  of  many  small 
mortgages  upon  real  estate  into  negotia- 
ble bonds.  In  Europe  great  banks  of 
this  character  exist  in  France,  Germany, 
Austria-Hungary,  Spain,  and  several  other 
countries,  and  recently  the  system  has 
been  extended  to  Egypt.  By  the  sale  of 
a  block  of  debenture  bonds,  secured  by 
mortgages  upon  the  land  upon  which 
loans  have  been  made,  the  investor  has  a 
security  which  is  negotiable  at  any  time 
on  the  market,  instead  of  dealing  with  a 
single  mortgage  which  he  might  find  diffi- 
culty in  selling,  in  case  of  need,  for  what 
he  paid  for  it. 

There  is  no  doubt  of  the  perfect  prac- 
ticability and  safety  of  the  system,  when 
loans  are  made  to  only  a  legitimate  per- 
centage of  the  ascertained  value  of  the 
property  and  other  proper  precautions  are 
taken.  The  Credit  Foncier  of  France, 


20      Wall  Street  and  the  Country 

which  is  engaged  in  such  business,  has 
mortgage  bonds  out  to  the  amount  of 
about  $350,000,000.  In  Germany  thirty- 
three  such  banks  have  similar  obligations 
to  the  amount  of  more  than  $  i ,  500,000,000, 
scattered  over  every  part  of  the  empire  ; 
while  the  Land  Mortgage  Bank  of  Austria- 
Hungary  has  debentures  of  nearly  $40,- 
000,000,  and  the  Mortgage  Bank  of  Spain 
has  similar  obligations  of  $17,000,000. 
These  institutions  practically  bring  into 
the  security  market  a  large  part  of  the 
land  values  of  Europe.  A  mortgage  bank 
of  this  sort  is  able  to  increase  its  loans  to 
the  limit  of  the  debentures  which  it  can 
sell,  and  every  few  months  witnesses  an 
offer  of  a  block  of  such  securities,  which 
are  eagerly  subscribed  for  by  those  seeking 
a  safe  and  steady  investment. 

The  genius  of  American  financiers  and 
promoters  has  blazed  out  investment  paths 
of  its  own.  The  path  followed  during  the 
last  few  years  has  been  the  conversion 
into  large  corporations  of  industrial  enter- 
prises. The  Wall  Street  Journal  recently 
estimated  the  new  securities  thrown  upon 


Our  Undigested  Securities      21 

the  market  as  a  result  of  this  process  at 
nine  billions  of  dollars,  and  declared  : , 

"  The  next  stage  was  the  sale  of  these  securities 
to  people  who  had  up  to  that  time  neither  been 
owners  of  plants  and  manufacturers,  nor  investors, 
but  who,  tempted  by  the  novel  opportunity,  in- 
vested their  money  in  the  new  industrial  securities. 
The  fact  that  the  United  States  Steel  Corporation 
now  has  something  like  55,000  stockholders  is  the 
best  demonstration  of  this  that  any  one  could  wish. 
Consequently,  the  industrial  promotions  had  the 
effect  of  tapping  to  quite  a  large  extent  a  fund 
which  had  heretofore  not  been  available  to  the  se- 
curity market,  having  found  investment  largely  in 
savings  banks,  real  estate,  etc." 

When  capital  began  to  accumulate  rap- 
idly, therefore,  after  the  recovery  from  the 
long  prostration  of  1893-97,  and  only  a 
limited  outlet  was  found  for  it  at  first  in 
the  creation  of  new  manufacturing  plants 
and  the  extension  of  railways,  the  finan- 
cier turned  naturally  to  the  project  of  or- 
ganizing manufacturing  industries  upon 
the  basis  of  stock  companies.  Other 
reasons,  like  the  severity  of  competition, 
undoubtedly  produced  the  tendency  to 
consolidate  industries  by  bringing  to  an 


22      Wall  Street  and  the  Country 

end  useless  duplications  of  expenditure 
and  getting  rid  of  competition.  These 
causes,  however,  could  not  have  produced 
all  the  recent  phenomena  of  the  money 
market  if  there  had  not  been  a  great  fund 
of  capital  in  the  market  seeking  new  in- 
vestments. There  would  not  have  been 
the  capital  available  in  the  hands  of  one 
manufacturer  to  buy  out  another,  or  in 
the  hands  of  promoters  to  buy  them  both 
out,  which  has  been  found  available  under 
the  conditions  of  recent  years. 

When,  however,  the  earning  power  of 
a  number  of  mills  or  factories  could  be 
capitalized  into  bonds  and  preferred  stock, 
a  supply  of  securities  could  be  thus  created 
which  would  meet  the  demand  for  new 
forms  of  investment  arising  from  among 
those  who  were  rapidly  making  money 
under  favorable  commercial  conditions. 
In  many  cases  it  was  found  that  the  own- 
ers of  the  old  establishments  were  willing 
to  retire  from  business  and  to  accept  a 
fixed  income  upon  their  capital.  To 
others  the  original  investment  could  be 
reimbursed  from  the  savings  of  outsiders 


Our  Undigested  Securities       23 

who  became  shareholders  in  the  consoli- 
dated industries.  The  transfer  of  such 
considerable  sums  to  the  owners  of  the 
old  plants,  where  they  were  paid  in  cash, 
added  to  the  fund  seeking  investment, 
and  thereby  added  to  the  capacity  of  the 
market  for  absorbing  securities. 

That  this  tendency  to  create  securities 
has  been  overdone  within  the  past  few 
years  is  undoubtedly  true.  The  inevit- 
able operation  of  the  law  of  supply  and 
demand  curtailed  demand  when  the  sup- 
ply of  capital  available  for  such  invest- 
ments was  absorbed.  The  process  of 
creating  new  securities  proved  so  profit- 
able— or  at  least  appeared  so — that  the 
demand  was  soon  more  than  satisfied. 
Hence  came  the  phenomenon  of  a  mass 
of  "  undigested  securities,"  which  could 
no  longer  find  the  ready  market  of  a  few 
years  before.  The  fault  has  not  lain  en- 
tirely with  the  character  of  the  securities. 

The  fall  in  quotations  for  "  industrials  " 
on  the  New  York  stock  market  is  not  due 
altogether  to  impairment  of  confidence  in 
the  value  of  such  enterprises,  but  is  the 


24      Wall  Street  and  the  Country 

inevitable  result  of  an  excessive  offer  in 
relation  to  effective  demand.  That  effect- 
ive demand  depends  upon  the  supply  of 
I\N  {capital.  The  evidence  of  deficiency  of 
capital  in  Great  Britain  is  afforded  by  the 
heaviness  of  British  consols,  which  carried 
them  down  from  112  in  1897  to  94  in 
1899,  and  finally  below  88  in  1903.  It 
was  not  that  confidence  had  been  im- 
paired in  the  willingness  and  ability  of  the 
British  Government  to  pay  interest  in  full 
on  the  securities  as  it  became  due,  but 
the  fact  that  new  issues  of  such  obliga- 
tions increased  the  supply  on  the  market 
beyond  the  demand  for  a  safe  security  at 
the  higher  prices.  To  a  like  cause — ab- 
y  sorption  of  the  surplus  capital  in  the 
vcmarket-^fnay  be  attributed  the  fall  in 
/first-class  railroad  stocks,  and  the  hesi- 
tation of  the  market  to  absorb  new 
stocks  and  bonds  of  the  most  "gilt- 
edged"  character. 

Undoubtedly,  also,  in  the  case  of  indus- 
trial securities  issued  on  the  American 
market,  the  character  of  those  issued  has 
tended  in  many  cases  to  become  worse  as 


Our  Undigested  Securities      25 

the  issues  have  increased.  This  would 
not  necessarily  be  the  fact  in  each  sepa- 
rate case,  but  would  result  from  the  nat- 
ural tendency  to  first  consolidate  those 
industries  which  afforded  the  best  eco- 
nomic justification  for  it.  The  first  con- 
solidations were  the  result  of  the  pressure 
of  economic  necessity  in  order  to  escape 
forms  of  competition  which  had  destroyed 
profits.  They  promised  real  economies  in 
management  and  increased  earnings,  in 
order  to  commend  themselves  to  the  pro- 
moters and  investors  who  took  them  up. 
When  consolidation,  however,  had  be- 
come simply  an  imitative  mania,  and  the 
investor,  tempted  by  the  large  profits,  or 
apparent  large  profits,  of  the  first  combi- 
nations, became  eager  to  buy  their  securi- 
ties, it  was  inevitable  that  the  quality  of 
new  enterprises  of  this  character  should 
progressively  deteriorate.  When  the  de- 
mand for  new  securities  was  small,  it  was 
necessary  that  they  should  be  of  the  high- 
est character  to  find  a  market ;  when  the 
demand  became  apparently  insatiable,  it 
was  natural  that  shrewd  and  sometimes 


26      Wall  Street  and  the  Country 

unscrupulous  promoters  should  set  them- 
selves to  provide  a  supply. 

It  might  be  said  in  a  broad  sense  that 
the  early  consolidations  were  forced  upon 
promoters  and  financiers  by  industrial  con- 
ditions,— while  some  of  the  later  ones 
were  the  result  of  the  efforts  of  such  pro- 
moters to  create  conditions  which  would 
afford  them  opportunities  for  "  a  rake-off." 
In  an  economic  sense,  the  later  process 
was  putting  the  cart  before  the'  horse. 
When  mushroom  trust  companies  were 
created  for  the  purpose  of  imitating  the 
large  profits  of  the  older  and  more  con- 
servative companies,  it  was  natural  that 
they  should  greedily  swallow  any  bait 
which  promised  large  profits,  without 
going  behind  the  prospectus  to  inquire 
too  closely  into  the  solidity  of  the  new 
projects,  or  even  into  the  honesty  of  those 
who  brought  them  forward. 

But  the  public  is  to  blame  in  such  cases 
quite  as  much  as  misguided  or  dishonest 
promoters.  If  they  pass  by  conservative 
companies  and  safe  investments  to  seize 
upon  glittering  offers  of  speculative  stocks 


Our  Undigested  Securities      27 

by  mushroom  institutions,  who  is  to  stay 
them  or  retrieve  their  errors,  so  long  as 
those  who  delude  them  keep  barely  within 
the  line  of  indictable  fraud  ?  It  is  the 
same  old  story  which  has  been  told  many 
times  in  periods  of  expanding  trade.  The 
public  fail  to  discriminate  between  those 
securities  which  are  proper  for  trust  in- 
vestments and  those  whose  low  prices  are  , 
determined  by  the  very  fact  that  they  are 
speculative.  Each  successive  generation 
in  a  period  of  prosperity  and  ascending 
prices  seems  to  forget  the  fundamental 
rule  of  finance, — that  the  return  paid  upon 
a  security  is  inversely  to  its  safety.  To 
those  financiers  who  inculcate  this  rule 
they  turn  a  deaf  ear,  and  the  latter  are 
perforce  compelled  to  drift  with  the  cur- 
rent or  see  themselves  stranded  without 
clients  or  profits. 

Every  new  form  of  financial  organiza- 
tion has  to  pass  through  the  test  of  fire. 
Experience  is  required  to  develop  its  ele- 
ments of  strength  and  weakness.  When 
the  principle  of  the  stock  company  with 
limited  liability  was  first  recognized  in 


28      Wall  Street  and  the  Country 

modern '  industry,  Adam  Smith  declared 
that  its  use  was  limited  to  a  few  special 
enterprises  like  banking,  which  followed 
a  settled  routine.  Every  one  has  gotten 
away  from  that  prejudice,  but  the  ultimate 
capacity  of  the  joint-stock  system  of  or- 
ganization is  still  untested.  During  the 
past  century  it  has  been  extended  to  nearly 
every  form  of  manufacture  and  to  the 
complicated  problems  of  transportation 
by  land  and  sea.  It  contains,  however, 
other  possibilities  which  have  not  yet 
been  developed.  Among  those  which 
have  recently  been  put  into  practice  have 
been  the  consolidation  of  great  industries, 
the  leasing  of  one  corporation's  property 
to  another,  and  the  control  of  operating 
companies  by  companies  holding  their 
securities.  Whether  these  new  forms  of 
joint-stock  enterprise  will  be  successful 
must  be  determined  by  the  same  test 
which  has  been  applied  to  all  other  enter- 
prises,— the  test  of  experience. 

It  is  not  surprising  that  the  first  experi- 
ments have  afforded  results  which  in  some 
cases  are  subject  to  criticism.  This  was 


Our  Undigested  Securities      29 

the  case  with  some  of  the  first  joint-stock 
companies  in  their  simplest  form,  and  was 
so  conspicuously  the  case  with  banking 
in  our  earlier  history  that  the  innocent 
use  of  credit  in  the  form  of  printed  bank- 
notes has  not  yet  shaken  off  the  preju- 
dice resulting  from  these  experiments. 
Even  the  corporate  organizations  of  rail- 
ways, with  their  issues  of  bonds  and  stock 
to  create  pathways  through  the  wilder- 
ness, resulted  in  great  losses  in  1873,  and 
nearly  two  hundred  receiverships  as  re- 
cently as  1893.  The  London  Statist  has 
within  a  few  months  recalled  to  British  in- 
vestors that  "  in  their  early  days  many  of 
the  [American]  railroads  were  over-capi- 
talized much  as  industrial  companies  now 
are,  but  owing  to  their  enormous  better- 
ment outlays  for  many  years  past,  the 
water  in  American  railway  capital  has  now 
been  in  most  cases  effectively  squeezed 
out,  and  the  properties  brought  up  to 
their  book  values." 

But  the  joint-stock  principle,  the  rail- 
ways and  the  banks  have  survived  the 
trials  resulting  from  early  errors,  and  are 


30      Wall  Street  and  the  Country 

now  admitted  by  every  one  to  be  essen- 
tial and  beneficent  parts  of  our  economic 
machinery.  Railway  bonds  and  .  many 
railway  stocks  have  reached  a  solid  invest- 
ment basis,  superior  to  the  storms  of  busi- 
ness disturbance  which  are  sweeping  over 
newer  forms  of  enterprise.  The  older  and 
larger  banks  and  trust  companies  have 
also  avoided  the  blunders  of  early  days, 
and  have  kept  their  assets  in  a  form  in 
which  they  could  be  quickly  converted 
into  cash  in  case  of  need.  The  fact  that 
deposits  payable  on  demand  should  be 
covered  by  assets  convertible  on  demand 
has  been  well  learned  by  American  bank- 
ers. Only  the  amateurs  and  the  incom- 
petents among  bankers  and  trust-com- 
pany managers  have  forgotten  the  famous 
distinction  of  Mr.  Hankey  between  a 
mortgage  and  a  bill  of  exchange.  The 
more  conservative  of  the  New  York  trust 
companies  in  particular,  making  their  ad- 
vances exclusively  on  the  best  stock-ex- 
change securities,  with  a  margin  of  twenty 
per  cent  between  the  market  value  and 
the  amount  loaned,  have  not  failed  since 


Our  Undigested  Securities      31 

the  first  signs  of  a  coming  storm  to  hus- 
band their  resources,  to  scan  critically 
even  high-priced  collateral,  and  to  throw 
the  benefit  of  the  doubt  always  on  the 
side  of  conservatism. 

It  remains  to  apply  to  the  industrial 
trust  and  the  new  forms  of  financial  organi- 
zation the  lessons  so  well  learned  in  the 
school  of  experience  in  railroading  and 
banking.  To  obtain  a  given  result  by 
the  greatest  possible  economy  of  capital 
and  of  effort  is  the  secret  of  success  in 
finance,  in  industry,  and  in  competition  in 
foreign  markets.  The  Bank  of  England 
does  the  great  business  of  the  British 
banking  system  with  a  metallic  reserve 
many  times  less  in  proportion  to  the 
transactions  of  the  country  than  that  of 
the  New  York  banks  and  the  Treasury  of 
the  United  States.  In  the  early  days 
of  England's  financial  primacy,  the  re- 
serve proved  insufficient,  and  English 
finance  was  all  but  wrecked.  So  it  may 
be  that  our  industrial  combinations  must 
learn  the  lesson  of  larger  reserves  and 
sufficient  working  capital  before  they  are 


32      Wall  Street  and  the  Country 

planted  on  a  solid  basis ;  but  in  the  end, 
even  if  they  cannot  realize  the  ambitious 
dream  of  putting  an  end  to  perturbations 
in  industry,  they  are  likely  to  vindicate 
their  claim  to  increasing  the  productive 
efficiency  and  competitive  power  of  our 
country. 

It  may  well  prove,  also,  that  the  prin- 
ciple of  the  operating  company  and  the 
security-holding  company,  in  spite  of  the 
fact  that  they  give  a  minority  of-  strong 
holders  the  power  to  dictate  the  policy  of 
the  corporation  under  control,  may  serve 
the  public  interest  by  bringing  unity  and 
concentration  into  management  which  has 
been  incoherent  and  incompetent.  The 
system  of  the  security-holding  company 
permits  far-sighted  men,  for  instance,  who 
are  willing  to  postpone  present  dividends 
to  future  wealth,  to  study  the  needs  of  a 
growing  community,  and  to  promote  its 
growth  by  building  traction  lines  in  ad- 
vance of  the  public  demand  instead  of 
waiting  for  such  a  demand  to  become  im- 
perative. It  enables  the  managers  of  a 
great  trunk  line  to  put  an  end  to  transfers 


Our  Undigested  Securities      33 

of  passengers  at  State  boundaries  and 
local  terminals,  and  to  run  the  palatial 
trains  across  the  continent  upon  harmo- 
niously adjusted  schedules  which,  far 
from  being  "  in  restraint  of  trade,"  have 
done  more  to  promote  it  than  all  the  laws 
for  preventing  combination  or  all  the 
suits  begun  in  pursuance  thereof.  The 
system  of  the  holding  company  undoubt- 
edly increases  the  power  of  the  big  finan- 
ciers, but  it  enables  them  in  many  cases  to 
go  forward  with  far-sighted  plans  for 
meeting  the  certain  expansion  of  local 
traffic  in  our  imperial  city,  or  of  inter- 
national traffic  between  the  grain-fields  of 
Minnesota  and  the  markets  of  Asia, 
which  would  be  difficult  or  impossible 
under  the  old  system  of  petty  competing 
organizations  governed  by  the  restricted  j 
vision  of  some  neighborhood  magnate. 

The  voting  trust  is  another  system  of 
organization  designed  to  the  same  end,— 
to  put  properties  into  the  hands  of  com- 
petent and  responsible  persons,  and  to 
remove  them,  during  necessary  processes 
of  reorganization,  from  the  danger  of 


34      Wall  Street  and  the  Country 

manipulative  control  through  the  stock 
market.  One  of  the  greatest  evils  of  our 
system  of  an  unfettered  stock  market  is  the 
opportunity  which  it  affords  to  rich  bucca- 
neers to  upset  values  and  threaten  the  tran- 
quil ownership  of  property.  Against  this 
danger  the  voting  trust  forms  a  safe- 
guard. In  thus  making  it  easy  to  locate 
upon  a  few  heads  the  responsibility  for 
the  conduct  of  great  enterprises,  the  man- 
agement of  our  financial  projects  follows 
the  tendency  toward  the  fixing  of  respon- 
sibility which  has  become  the  model  under 
our  best  city  charters,  where  the  scattered 
authority  of  commissions  and  legislative 
bodies  has  been  concentrated  to  a  large 
degree  in  the  hands  of  a  single  executive. 
The  concentration  of  banking  resources, 
and  the  power  to  act  resolutely  in  times 
of  crisis,  which  is  derived  from  coopera- 
tion among  the  banks  and  a  few  powerful 
leaders,  are  generally  recognized  to  be 
among  the  most  potent  factors  in  our 
recent  industrial  progress  and  our  present 
financial  security.  If  the  recent  decline 
in  the  price  of  securities  had  found  the 


Our  Undigested  Securities      35 

market  depending  upon  a  large  number 
of  banking  institutions  with  small  capital, 
indifferently  managed,  and  divided  by 
petty  jealousies,  it  might  have  tumbled 
them  over  like  a  row  of  bricks,  and  made 
the  declining  market  of  1903  a  repetition 
of  the  panic  experiences  of  1873  and 
1893.  Combination  has  vindicated  itself 
the  world  over  in  banking ;  it  remains  to 
be  seen  whether,  after  due  experimenta- 
tion, it  will  not  also  vindicate  itself  in 
railway  management  and  manufacturing. 

America  has  a  great  destiny  to  perform 
in  the  industrial  development  of  the  world. 
She  can  perform  it  only  by  applying  to 
every  part  of  the  machinery  of  production, 
transportation,  and  exchange  the  principle 
of  the  greatest  economy  of  effort  to  obtain 
the  greatest  sum  of  results.  The  oppor- 
tunity for  every  man  to  rise  by  his  talents 
from  the  lowest  to  the  highest  place,  the 
right  to  reapjandjceep  the  rewards  of  one's 
labor  without  excessive  taxation  or  vexa- 
tious visitation,  the  privilege  of  transfer- 
ring property  on  the  stock  exchanges 
without  the  fetters  imposed  on  such 


36     Wall  Street  and  the  Country 

transactions  in  Europe,  and  the  freedom 
to  extend  new  methods  of  economy  and 
combination  in  trade  and  finance  across 
the  continent,  untrammelled  by  local  tariffs 
and  State  boundaries,  are  among  the 
weapons  which  give  our  country  its  great 
advantages  in  dealing  with  older  competi- 
tors. It  is  not  surprising  that,  in  the 
strenuous  work  of  forging  these  weapons 
to  their  sharpest  temper,  mistakes  have 
been  made,  capital  has  been  lost,  the  sub- 
tile resentment  has  been  aroused  of  those 
incompetent  to  meet  the  new  conditions ; 
but  such  errors  are  the  almost  inevitable 
incidents  of  a  period  of  progress.  They 
correct  themselves  in  the  furnace  of  com- 
petition better  than  they  are  likely  to  be 
corrected  by  paternal  legislation,  which  is 
usually  bungling  and  often  ineffective. 

A  community  which  does  not  within 
proper  limits  encourage  the  enterprise  of 
the  promoter  puts  fetters  upon  the  transfer 
of  its  capital  to  its  most  efficient  uses 
and  upon  the  development  of  its  highest 
industrial  efficiency.  Upon  the  proper 
direction  of  capital  rests  the  industrial  de- 


Our  Undigested  Securities      37 

velopment  of  a  nation.  Everything  which 
tends  to  hamper  the  transfer  of  capital 
from  an  industry  which  has  ceased  to  be 
profitable,  because  perhaps  it  has  been  too 
widely  extended,  tends  to  prevent  the  di- 
rection of  the  capital  of  the  country  into 
the  channels  where  it  is  most  efficient.  ) 
The  work  of  the  promoter  in  recent  years 
has  tended  to  increase  this  transferability 
of  capital  by  providing  a  method  for  get- 
ting rid  of  useless  plants  without  direct 
loss  to  their  owners,  and  adjusting  the 
productive  capacity  of  an  industry  to  the 
actual  demand  for  its  products.  More 
than  this,  in  the  organization  of  a  new  en- 
terprise, like  the  opening  of  a  new  mine, 
the  promoter  actually  adds  to  the  efficient  \ 
wealth  of  the  community  by  opening 
sources  of  income  which  were  before  un- 
touched. As  Professor  Meade  well  says 
in  his  book  already  quoted  : 

"  In  the  present  scheme  of  production  the  re- 
sources and  the  money  are  useless  apart.  Let  them 
be  brought  together,  and  wealth  is  the  result.  The 
unassisted  coincidence  of  investment  funds  with 
investment  opportunities,  however,  is  fortuitous 


38      Wall  Street  and  the  Country 

and  uncertain.  The  investor  and  the  land  or 
patent  or  mine  owner  have  few  things  in  common. 
Left  to  themselves  they  might  never  meet.  But 
the  promoter  brings  these  antithetical  elements  to- 
gether, and  in  this  way  is  the  means  of  creating  a 
value  which  did  not  before  exist,  and  which  is 
none  the  less  a  social  gain  because  much  of  it  is 
absorbed  by  the  promoter  and  the  financier." 

The  new  methods  and  the  new  projects 
are  going  through  the  test  of  fire  to-day, 
and  some  of  them  are  being  consumed. 
The  tests  which  weeded  out  the  badly  or- 
ganized and  incompetent  of  the  early 
stock  companies,  which  drove  to  the  wall 
the  " wildcat"  banks  of  ante-bellum  days, 
and  which  wiped  out  dividends  and  stock 
rights  in  badly  managed  railways,  are  now 
being  applied  to  the  new  forms  of  organi- 
zation which  have  been  the  growth  of  the 
past  decade.  But  the  stronger  and  better 
organized  of  these  new  corporations  are 
likely  to  meet  these  trials  without  disaster, 
or  to  modify  their  methods  to  conform  to 
the  teachings  of  experience,  until  there 
remains  to  the  financial  world  a  valuable 
residuum  of  new  methods  for  giving  flexi- 


Our  Undigested  Securities      39 

bility  to  capital  and  promoting  its  transfer 
promptly  and  efficiently  from  the  indus- 
tries where  it  is  not  needed  to  those  where 
it  will  render  its  highest  service. 


II 

THE   TRUSTS   AND    THE    PUBLIC 

THE  discussion  now  going  on  in  regard 
to  the  regulation  of  large  corporations, 
popularly  known  as  "  trusts,"  would  prob- 
ably be  more  intelligent  if  there  were  a 
more  careful  definition  of  the  objects 
sought  and  a  more  definite  understanding 
of  the  interests  to  be  served  by  such  regu- 
lation. There  has  been  so  much  of  pas- 
sionate declamation  on  the  one  hand  and 
so  much  of  strong  resentment  on  the  other 
that  the  true  issues  have  been  to  a  large 
extent  obscured  in  a  mist  which  the 
thoughtful  voter  would  find  it  difficult 
to  penetrate  if  he  should  be  called  upon 
to  vote  on  the  subject.  It  is  obviously 
for  the  interests  of  those  who  have  really 
anything  at  stake,  whether  as  the  pro- 
moters of  important  enterprises,  as  in- 
vestors in  securities,  or  simply  as  the 
40 


The  Trusts  and  the  Public      41 

consumers  of  "  trust-made  goods,"  that 
all  sides  of  the  question  should  be  fairly 
presented  and  dispassionately  considered. 
The  biblical  mandate,  "  Come  now, 
let  us  reason  together,"  should  be  given 
a  sufficiently  broad  application  to  include 
a  recognition  of  concrete  facts  as  well  as 
abstract  principles.  It  has  been  one  of 
the  distinguishing  qualities  of  the  Anglo- 
Saxon  peoples, — which  has  marked  them 
off  from  their  Latin  rivals, — that  they 
have  not  been  too  hasty  to  adopt  abstrac- 
tions as  a  rule  of  action.  They  have 
shown  a  respect  for  "  vested  rights,"  even 
when  those  rights  have  grown  into  abuses, 
which  has  deprived  their  political  progress 
of  such  picturesque  episodes  as  the  aboli- 
tion of  the  old  calendar,  the  voting  away  of 
privileges  in  a  night,  and  the  tearing  open 
of  the  sepulchres  of  kings,  which  marked 
the  Revolution  in  France,  but  has  con- 
tributed on  the  whole  to  their  more  solid 
progress  in  the  difficult  art  of  linking 
economic  development  and  the  security 
of  property  with  government  by  universal 
suffrage. 


42      Wall  Street  and  the  Country 

In  dealing  with  the  problems  grow- 
ing out  of  new  economic  developments, 
there  is  no  reason  to  doubt  that  the 
American  people  will  in  the  long  run 
proceed  with  the  same  sobriety,  sanity, 
and  respect  for  their  real  interests  with 
which  they  have  proceeded  to  the  solution 
of  similar  problems  in  the  past.  With  a 
presidential  campaign  at  hand,  however, 
care  should  be  taken  to  guard  against 
hasty  judgments,  and  above  all,  against 
reasoning  to  an  apparently  sound  conclu- 
sion from  premises  which  are  falsely  as- 
sumed. If  the  premise  is  sound,  that  all 
large  corporations  are  inimical  by  their 
very  essence  to  the  economic,  political,  or 
moral  life  of  the  nation,  a  means  will  be 
found  for  destroying  them.  If  this  prem- 
ise is  not  sound,  but  if  only  certain  phases 
of  corporation  management,  and  not  all, 
are  injurious  to  the  national  welfare,  then 
care  should  be  taken  in  removing  the 
unsound  timbers  that  that  majestic  fabric 
of  our  economic  power,  which  makes  us 
the  admiration  and  envy  of  all  peoples,  is 
not  weakened  or  brought  down  in  ruins. 


The  Trusts  and  the  Public      43 

In  clearing  the  ground  of  the  rubbish 
of  much  of  the  current  discussion,  it  is  de- 
sirable that  certain  distinctions  should  be 
made  as  to  the  objects  sought  by  further 
regulation  of  corporations.  One  of  the 
distinctions  which  the  advocates  of  fur- 
ther regulation  may  fairly  be  asked  to 
make  is,  whether  their  essential  object  is 
the  protection  of  the  investor  or  the  con- 
sumer. It  is  obvious  that  these  two  inter- 
ests might  be  quite  antagonistic.  It  is  to 
the  interest  of  the  investor,  in  a  narrow 
sense  at  least,  to  get  as  much  from  the 
public  as  he  can  by  means  of  large  profits 
and  exclusive  privileges  for  the  corpora- 
tions whose  stocks  or  bonds  he  holds. 
It  is  to  the  interest  of  the  consumer,  on  the 
other  hand,  to  limit  the  profits  of  the  in- 
vestor and  to  restrict  the  privileges  of  the 
corporation  whose  products  he  desires  to 
use. 

From  a  broad  point  of  view  there  is 
a  certain  harmony  of  interest  even  where 
there  appears  to  be  antagonism,  since  a 
far-sighted  corporate  management  will 
seek,  on  the  one  hand,  to  keep  profits 


44     Wall  Street  and  the  Country 

below  a  point  which  will  create  new  com- 
petitors, and,  on  the  other  hand,  will  seek 
to  steadily  enlarge  its  market  by  offering 
products  at  prices  which  are  attractive 
to  consumers.  These  influences,  how- 
ever, are  the  result  of  natural  economic 
forces  whose  efficiency  in  preventing 
abuses  is  denied  by  those  who  advocate 
further  regulation  of  the  corporations 
than  that  afforded  by  existing  laws.  From 
the  standpoint  of  the  advocates  of  'regula- 
tion, therefore,  there  should  be  a  sharp 
distinction  drawn  between  legislation  for 
the  investor  and  that  for  the  consumer,  if 
any  intelligent  progress  is  to  be  made. 
It  is  rather  remarkable  that  recent  criti- 
cism of  the  corporations  has  turned  more 
upon  what  the  investor  has  suffered  from 
the  decline  in  values  and  the  flotation  of 
doubtful  securities  than  upon  the  injury 
which  has  been  done  by  corporate  exac- 
tions to  the  consumer ;  yet,  by  a  strange 
confusion  of  reasoning,  the  prejudice 
caused  to  the  investor  by  these  events, 
in  the  cutting  of  prices,  the  fall  in  values, 
and  the  collapse  of  weak  concerns,  instead 


The  Trusts  and  the  Public      45 

of  being  welcomed  as  bringing  tardy  jus- 
tice to  the  consumer,  is  used  as  one  of  the 
weapons  in  the  general  crusade  in  the  con- 
sumer's behalf. 

That  regulation  of  corporations  by  law 
is  to  a  certain  degree  necessary  and  desir- 
able, is  a  recognized  principle  of  our  legal 
policy.  Corporations  are  the  creatures 
of  the  law  because  their  shareholders  are 
dowered  by  the  law  with  the  privilege 
of  limited  liability  and  the  corporations 
themselves  are  given  the  advantages  of 
perpetual  life.  Heretofore,  however,  the 
several  States  have  been  left  to  regulate 
corporations  as  they  saw  fit,  and  their 
regulation  has  been  in  many  cases  emi- 
nently efficient.  They  have  so  far  pro- 
tected the  holders  of  insurance  by  careful 
definitions  of  their  rights  that  the  varied 
forms  of  policies  have  been  reduced  to 
a  nearly  uniform  income  basis.  They  ex- 
ercise the  power  of  visitation  over  State 
banks,  as  the  Federal  Government  does 
over  national  banks.  In  many  cases,  they 
collect  special  taxes  upon  corporate  fran- 
chises and  earnings,  which  would  have 


46      Wall  Street  and  the  Country 

to  be  renounced  if  this  form  of  taxation 
were  adopted  by  the  Federal  Government. 
Such  legislation  has  been  the  result  of 
experience.  It  did  not  spring  forth  fully 
formed,  with  the  birth  of  insurance  com- 
panies and  State  banks.  It  has  become 
most  nearly  perfect  in  those  States  where 
these  institutions  have  attained  their  great- 
est development,  and  its  history  may  well 
afford  an  index  for  the  future  to  those 
who  are  not  too  impatient  of  the  reasoned 
deliberation  of  Anglo-Saxon  methods  in 
dealing  with  such  subjects.  * 

If  there  is  to  be,  therefore,  further  regu- 
lation of  large  corporations,  and^specially 
the  extension  of  Federal  control  over 
State  corporations,  it  will  contribute  some- 
thing to  clearness  of  thinking  and  preci- 
sion in  action  if  the  ends  sought — whether 
the  protection  of  the  investor  or  the  pro- 
tection of  the  consumer — are  clearly  de- 
fined and  separately  considered. 

Taking  up  the  subject  from  the  side  of 
the  investor,  it  is  obvious  that  his  protec- 
tion by  law  implies  that  he  shall  be  pro- 
tected against  investments  in  securities 


The  Trusts  and  the  Public      47 

which  have  not  the  value  they  purport  to 
have.  It  means  additional  guarantees  that 
dividends  which  are  not  earned  shall  not 
be  paid,  and  that  proper  provision  shall 
be  made  by  setting  aside  reserves  in  fat 
times  for  the  payment  of  dividends  in 
lean  times.  These  are  desirable  objects, 
but  they  are  already  sought  by  the  cor- 
poration laws  of  the  States  where  corpor- 
ate business  is  largest.  It  is  a  question 
whether  the  protection  of  the  investor  in 
the  future  should  not  proceed  along  the 
lines  of  his  economic  education  rather 
than  along  the  lines  of  new  restrictions 
upon  corporations.  Just  so  far  as  the 
Government  relieves  the  citizen  of  the 
obligation  of  looking  out  for  himself,  it 
promotes  a  condition  of  dependence  upon 
the  State  which  is  detrimental  to  genuine 
economic  progress. 

Ample  illustrations  of  this  may  be  found 
in  the  history  of  corporation  law  in  such 
countries  as  France  and  Germany.  The 
French  law  requires  any  foreign  corpora- 
tion entering  upon  business  in  France  to 
obtain  from  the  French  Consul  in  the 


48      Wall  Street  and  the  Country 

country  where  the  corporation  is  author- 
ized a  certificate  of  its  incorporation.  The 
certificate  means  nothing  as  to  the  solv- 
ency and  earning  power  of  the  corpora- 
tion, but  it  puts  upon  paper  corporations 
the  stamp  of  the  signed  declaration  of  the 
French  Consul  that  they  are  legally  con- 
stituted in  a  foreign  country.  While  such 
a  circumstance  does  not  mislead  the  intel- 
ligent financier,  with  ignorant  investors 
the  intervention  of  the  French  law  has 
proved  a  positive  aid  to  adventurers  in 
perpetrating  frauds,  because  of  their  im- 
plicit reliance  upon  the  value  of  an  official 
certificate. 

It  is  hardly  possible  that  any  body  of 
law,  however  minute  and  however  restric- 
tive, could  protect  investors  against  the 
consequences  of  ignorance  in  making 
their  investments.  The  essential  thing 
is  not  to  hamper  legitimate  corporations 
by  new  laws,  but  to  teach  the  public  to 
judge  investments  with  discrimination. 
It  is  not  possible  in  a  progressive  nation 
for  the  law  to  forbid  the  owners  of  capital 
from  investing  it  in  enterprises  whose  se- 


The  Trusts  and  the  Public      49 

curities  have  not  acquired  the  character  of 
trust  funds.  Any  such  policy  would 
mean  that  enterprise  would  come  to  a 
dead  halt,  for  it  would  prevent  rich  men 
with  money  to  spare  from  putting  it  into 
patents  or  enterprises  promising  great 
economies  in  production  and  benefits  to 
the  community,  but  not  yet  placed  upon 
the  solid  investment  basis  of  bank  shares 
or  railway  bonds.  The  latter  quality  is 
acquired  only  by  enterprises  which  have 
been  subjected  to  the  test  of  experience. 
Railway  bonds  themselves  were  an  in- 
vestment of  a  very  uncertain  character 
within  the  memory  of  many  now  living, 
but  if  the  State  had  not  permitted  men 
with  faith  and  foresight  to  invest  in  them 
we  should  be  doing  business  still  with  the 
stage-coach  and  the  post-road. 

One  of  the  primary  lessons  which  the 
investor  should  be  taught  is  the  discrimi- 
nation between  different  types  of  invest- 
ment. He  should  learn  that  bonds  have  a 
prior  lien  over  preferred  stock  and  pre- 
ferred stock  over  common  stock.  He 
should  learn  that  these  distinctions  are 


50      Wall  Street  and  the  Country 

necessary  to  meet  the  requirements  of  dif- 
ferent types  of  investors, — the  holder  of 
trust  funds,  who  should  invest  only  in 
bonds  and  tested  preferred  stocks;  the 
man  who  is  willing  to  take  slight  risks 
and  therefore  may  invest  in  preferred 
stocks  of  slightly  lower  reputation  ;  and 
the  man  who  for  the  sake  of  possible  larger 
gains,  is  willing  and  able  to  take  large 
risks,  and  may  therefore  invest  properly 
in  the  common  stocks  of  untried  "  indus- 
trials "  and  undeveloped  mines. 

The  investor  should  learn  the  lesson 
that  he  cannot  reasonably  expect  all  these 
qualities  to  be  combined  in  one  invest- 
ment,— that  the  securities  which  are  abso- 
lutely safe  are  not  usually  the  ones  which 
are  sold  the  cheapest  and  from  which  the 
largest  returns  may  be  expected.  If  the 
thousands  of  people  who  have  within 
the  past  three  years  invested  in  some 
highly  speculative  common  stocks,  and 
have  seen  their  prices  decline  75  per 
cent  in  the  market,  have  been  advised 
by  competent  financiers  that  such  stock 
was  a  safe  investment  for  trust  funds  or 


The  Trusts  and  the  Public      51 

for  those  who  could  not  afford  to  lose, 
they  have  just  cause  of  complaint  against 
their  advisers  ;  but  if  they  had  possessed 
a  pittance  of  financial  knowledge  they 
should  have  known  that  the  common 
stock  of  an  untested  enterprise,  quoted 
far  below  par,  could  not  in  the  nature 
of  the  case  possess  the  character  of  a  trust 
investment.  It  is  difficult  to  see  how 
legislation  could  protect  such  a  type  of 
investors  from  the  consequences  of  their 
ignorance. 

A  sound  economic  education  would 
teach  the  public  that  high  returns  al- 
most inevitably  mean  risk,  and  that  the 
man  who  buys  securities  which  have  not 
reached  the  basis  of  trust  funds  should 
not  invest  more  than  he  can  afford  to 
lose.  In  simple  terms,  speculation  by 
people  of  small  means  should  be  dis- 
couraged, while  sound  investment  should 
be  encouraged.  There  is  undoubtedly  in 
America  too  much  reckless  and  unin- 
formed speculation,  especially  on  margins. 
"  One  of  the  things  which  surprised  me 
most,"  said  an  English  guest  at  a  dinner- 


52      Wall  Street  and  the  Country 

table  in  New  York  last  winter,  in  response 
to  a  question  as  to  what  impressed  him 
especially  in  the  American  market,  "  is 
the  amount  of  business  you  do  on  bor- 
rowed money."  He  referred  to  the  specu- 
lation on  margins,  which  is  so  universal 
here  among  people  of  small  means  and 
which  finds  so  slight  a  footing  on  the 
English  stock  exchanges. 

It  is  likely  to  prove  a  task  of  Sisyphus 
to  attempt  to  protect  the  public  against 
foolish  investments.  Opportunities  for 
investment  will  constantly  assume  new 
forms  which  will  elude  the  most  stringent 
law.  The  only  thing  which  would  finally 
extinguish  speculation  would  be  the  re- 
duction of  all  economic  forces  to  certain- 
ties. This  can  never  happen  until  economic 
efficiency  attains  its  maximum  develop- 
ment. It  may  attain  this  development  in 
an  ideal  world,  or  it  may  attain  it  by  the 
cessation  of  intellectual  activity  and  en- 
terprise in  the  existing  world.  The  lat- 
ter event — when  inventions  cease,  no  new 
enterprises  are  born,  and  nations  begin 
living  upon  their  capital,  and  falling  be- 


The  Trusts  and  the  Public      53 

hind  their  more  ambitious  rivals — is  what 
is  called  by  economists  "  the  stationary 
state."  Such  a  state  in  America  would 
be  the  antithesis  of  the  conditions  of  to- 
day ;  but  one  of  the  most  effective  condi- 
tions for  bringing  it  about  would  be  undue 
restrictions  upon  American  ingenuity  and 
enterprise  with  the  object  of  protecting 
the  reckless  and  improvident.. 

Even  in  a  stationary  economic  state, 
there  would  be  alternating  periods  of  busi- 
ness expansion  and  contraction.  With 
such  periods  stocks  would  rise  and  fall. 
Even  if  new  enterprises  of  merit  were 
stifled  by  law  or  by  lack  of  enterprise, 
fantastic  projects  would  be  conceived  for 
absorbing  saved  capital,  like  "  the  tulip 
mania"  in  Holland  and  the  South  Sea 
bubble  in  England.  All  that  can  be  done 
for  the  investor  by  positive  law  is  to  pro- 
tect him  against  palpable  fraud.  He 
cannot  be  protected  against  himself  if 
he  chooses  to  embark  in  speculative  en- 
terprises. As  President  Roosevelt  has 
so  tersely  said :  "  About  all  we  have 
a  right  to  expect  from  Government  is 


54      Wall  Street  and  the  Country 

that  it  will  see  that  the  cards  are  not 
stacked." 

The  direction  in  which  capital  shall 
flow  is  determined  by  competition. 
Where  it  proves  profitable  it  continues 
to  go.  From  where  it  proves  unpro- 
fitable it  withdraws.  Intervention  by  the 
State  which  seeks  to  determine  the  direc- 
tion of  the  flow  of  capital  is  likely  to  do 
harm  by  fettering  industry  and  diverting 
capital  from  its  most  productive  uses. 
Laws  regulating  capital  in  the  interest  of 
the  investor,  when  they  go  beyond  legiti- 
mate protection  against  fraud,  usually 
prove  ineffective  because  they  come  af- 
ter the  evil  which  they  seek  to  cure. 
They  simply  lock  the  stable-door  after 
the  horse  is  stolen. 

Turning  to  another  phase  of  the  cur- 
rent discussion  regarding  the  regulation  of 
the  trusts,  we  find  much  said  in  behalf 
of  "  publicity."  "  Publicity,"  in  the  minds 
of  many,  is  the  panacea  which  is  to  cure 
all  ills  by  revealing  to  the  fearless  eye  of 
the  incorruptible  official  and  to  the  sane, 
clear  mind  of  the  investor  all  the  dark 


The  Trusts  and  the  Public      55 

spots  in  corporate  management.  In  so 
far  as  publicity  prevents  palpable  fraud 
and  insists  upon  certain  sound  rules  in 
the  organization  of  new  companies,  it  un- 
doubtedly serves  a  useful  purpose.  The 
purpose  served,  however,  is  to  provide 
accurate  data  upon  which  the  investor 
may  base  conclusions  as  to  the  earning 
power  of  properties.  Provisions  for  such 
publicity  as  this  are  found  in  the  existing 
laws  of  most  of  the  States.  Railways  file 
reports  with  the  railway  boards  of  the 
States  through  which  they  run,  and  local 
corporations  in  nearly  every  State  are 
required  to  make  exhaustive  statements 
of  their  earnings  and  assets  to  State 
officials. 

Would  further  publicity  be  of  value  to 
the  investor  who  is  careless  or  over-opti- 
mistic ?  This  is  a  question  which  should 
be  thoughtfully  considered  by  those  who 
attach  importance  to  publicity.  Under 
the  English  law  "  publicity  "  has  been  car- 
ried so  far  ever  since  1862  that  the  rep- 
resentative of  a  yellow  journal  or  any 
other  curious  person  has  had  access  for  a 


56      Wall  Street  and  the  Country 

shilling  to  the  registers  of  share  compa- 
nies with  authority  to  ascertain  the  exact 
number  of  shares  held  by  each  member 
with  the  amount  which  he  has  paid  for 
them  or  failed  to  pay  ;  yet  this  calcium 
light  of  "  publicity  "  turned  upon  the  busi- 
ness of  the  modest  and  honest  rich  man 
has  not  prevented  gigantic  frauds  by  his 
dishonest  rivals,  repeated  losses  by  reck- 
less speculators,  or  the  necessity  of  further 
tinkering  the  general  companies'  acts 'more 
than  sixteen  times  in  a  generation,  inde- 
pendently of  other  acts  relating  to  special 
classes  of  corporations. 

Would  the  man  in  America  who  pro- 
poses to  take  a  "  flyer  "  in  "  steel  "  or 
"  cotton  "  be  more  likely  than  his  English 
brother  to  be  deterred  or  benefited  by 
more  publicity  regarding  those  indus. 
tries  ?  The  Steel  Corporation  already 
makes  admirable  reports  quarterly  and 
semi-official  estimates  of  its  earnings  at 
much  more  frequent  intervals.  In  cotton 
the  Government  makes  crop  estimates 
which  come  in  conflict  with  many  private 
estimates.  The  complaints  and  charges 


The  Trusts  and  the  Public      57 

of  bad  faith  which  these  Government  esti- 
mates engender  are  a  suggestive  hint  of 
what  might  follow  general  Government 
supervision  of  industry. 

If  a  man  is  determined  to  take  foolish 
risks  by  buying  speculative  stocks  when 
he  cannot  afford  to  lose,  he  is  not  likely 
to  be  stopped  by  anything  short  of  actual 
prohibition  by  law.  Does  the  demand  for 
publicity,  then,  when  submitted  to  analysis, 
mean  a  substitution  of  official  judgment 
for  private  judgment  ?  It  is  difficult  to 
see  what  else  it  means,  if  the  thoughtless 
speculator  who  hopes  to  make  money  by 
buying  some  stock  "  for  a  rise  "  is  to  be 
prevented  from  doing  it  when  he  is  likely 
to  suffer  a  loss.  Shall  his  right  to  "  take 
a  flyer"  in  cotton  be  subordinated  to  the 
judgment  of  the  chief  of  the  Bureau  of 
Statistics  of  the  Department  of  Agricul- 
ture that  the  crop  figures  do  not  make 
cotton  "a  good  buy"?  If  so,  State  so- 
cialism is  enthroned  at  a  bound  in  our 
political  system. 

Unfortunately,  human  foresight  has  not 
yet  reached  the  point  where  it  can  be 


58      Wall  Street  and  the  Country 

determined  with  certainty  in  every  case 
whether  a  given  course  will  bring  a  profit 
or  a  loss.  The  man  who  first  invents  the 
formula  for  determining  this  point  will 
hold  the  world  in  the  hollow  of  his  hand. 
For  him  and  for  all  to  whom  he  confides 
his  formula,  speculation  will  cease,  because 
it  will  cease  to  be  speculation. 

Putting  aside,  then,  the  question  of  offi- 
cial control  over  private  action,  the  re- 
siduum of  the  question  seems  to  be, 
whether  greater  publicity  than  exists  to- 
day would  protect  the  reckless  speculator 
against  himself.  Does  such  a  man  lose 
money  because  he  cannot  get  information 
which  he  honestly  seeks  ?  When  he  gets 
a  "tip"  to  "sell  Pennsylvania,"  does  he 
proceed  at  once  to  examine  all  the  avail- 
able data  regarding  the  finances,  policy, 
and  future  earning  capacity  of  the  Penn- 
sylvania Railway  ?  These  data  exist  in 
the  most  accessible  form  which  is  possible, 
in  official  balance  sheets  printed  broadside 
in  the  newspapers,  and  in  elaborate  de- 
tailed reports  of  operations,  assets,  train 
mileage,  and  earning  power  per  mile.  If 


The  Trusts  and  the  Public      59 

these  data  are  neglected  where  they  are 
now  made  public,  would  they  be  any  more 
carefully  studied,  except  by  experts,  when 
the  mass  of  material  to  be  examined  was 
increased  ? 

Undoubtedly  publicity  in  certain  cases 
where  there  is  now  secrecy  would  benefit 
a  few,  but  it  would  be  the  few  who  now 
profit  most  by  careful  study  of  values  and 
by  shrewd  employment  of  their  resources. 
But  it  is  not  these  men  who  are  calling 
most  loudly  for  "  publicity,"  and  it  is  not 
they  whom  it  is  in  the  heart  of  the  agi- 
tator against  the  "  trusts  "  to  serve.  To 
"  the  man  in  the  street "  it  is  doubtful  if 
publicity  would  be  worth  a  dollar  in  in- 
creased profits  or  diminished  losses,  — 
whether,  indeed,  he  would  not  be  tempted 
into  greater  recklessness  by  the  assurance 
that  the  paternal  hand  of  the  Govern- 
ment had  for  his  protection  been  laid 
upon  every  corporation  brought  under 
Federal  law. 

It  is  worthy  of  serious  thought,  whether 
in  seeking  the  protection  of  the  individual, 
there  is  not  danger  that  we  should  enter 


60      Wall  Street  and  the  Country 

on  the  narrow  path  of  some  of  the  conti- 
nental countries,  where  interference  by 
the  State  with  corporate  activity  tends  to 
stifle  invention  and  to  drive  away  capital. 
In  France  down  to  July,  1903,  it  was  im- 
possible by  law  to  divide  the  shares  of  a 
corporation  into  common  and  preferred. 
Shares  issued  for  anything  but  cash  can- 
not be  sold  on  the  exchanges  for  two  years. 
The  securities  of  foreign  corporations  can- 
not be  listed  or  even  publicly  sold  in 
France  without  the  payment  of  taxes 
which  practically  exclude  them  from  the 
Paris  bourse.  As  the  result  of  such  re- 
strictions, the  French  masses  have  ac- 
quired in  financial  matters  a  degree  of 
dependence  upon  the  Government  which 
has  tended  to  take  away  their  confidence 
in  themselves.  By  the  confession  of 
thoughtful  Frenchmen,  capital  tends  to 
leave  France  for  markets  where  it  is  more 
free,  and  the  persistent  thrift  and  intelli- 
gence of  the  French  people  does  not  find 
the  productive  outlets  at  home  which 
would  be  found  under  a  system  of  greater 
economic  freedom. 


The  Trusts  and  the  Public      61 

For  the  protection  of  the  investor,  there- 
fore, it  is  doubtful  whether  new  laws  would 
have  value  unless  they  stifled  all  the  quali- 
ties which  are  giving  America  her  pre- 
dominance in  the  world  of  finance.  The 
protection  of  the  consumer  presents  an- 
other side  of  the  problem.  Will  he  be 
benefited  by  severe  repressive  legislation 
regarding  investments  and  by  giving  pub- 
licity to  all  that  is  done  by  corporate 
authority  ?  From  a  narrow  standpoint  it 
may  be  conceded  that  it  is  possible  to 
take  something  for  a  limited  time  from 
the  capitalist  and  the  producer  and  hand 
it  over  to  the  consumer.  The  French 
National  Assembly  was  able  to  take  prop- 
erty from  the  nobility  and  turn  it  into  the 
coffers  of  the  nation.  France  and  Mexico 
have  been  able  to  confiscate  the  property 
of  the  church  and  appropriate  it  to  public 
uses.  Italy,  some  years  ago,  converted  a 
five  per  cent  bond  into  a  net  four  per 
cent  obligation  by  imposing  a  tax  of 
twenty  per  cent  upon  incomes  from  se- 
curities ;  but  the  stock  market  promptly 
responded  by  reducing  Italian  securities 


62      Wall  Street  and  the  Country 

to  a  price  corresponding  to  their  dimin- 
ished net  return.  So  it  might  be  possi- 
ble for  the  property  of  the  Standard  Oil 
Company  or  the  Steel  Corporation  to  be 
seized  by  the  State  or  practically  confisca- 
ted by  excessive  taxation  and  turned  into 
the  public  treasury.  But  it  is  not  such 
extreme  measures  that  it  is  necessary  to 
discuss.  It  is  obvious  that  the  attempt 
by  the  Government  to  fix  maximum  prices 
for  commodities  or  to  diminish  by  taxa- 
tion the  profits  of  industry,  would  yield 
only  temporary  results,  because  properties 
would  be  sold  by  their  owners  or  aban- 
doned when  it  became  impossible  to  run 
them  at  a  profit. 

The  essential  question  in  regard  to  the 
consumer,  therefore,  is  whether  the  com- 
munity as  a  whole  will  secure  in  the  long 
run  a  real  economic  gain  by  adopting  re- 
strictions on  corporate  activity  or  on  the 
forms  of  investment.  This  is  the  crux  of 
the  problem, —  whether  the  consumer  will 
be  benefited  in  the  long  run  by  measures 
which  tend  to  repress  inventive  skill  and 
enterprise  by  diminishing  the  profits  of 


The  Trusts  and  the  Public      63 

those  who  possess  these  qualities.  The 
difference  between  a  progressive  nation 
and  a  receding  one  is  chiefly  the  intellect- 
ual activity  and  inventive  genius  of  the 
former.  These  qualities  must,  even  in  the 
most  enlightened  States,  be  the  rare  prop- 
erty of  a  limited  number  of  individuals. 
In  America,  fortunately,  the  opportunity 
to  enter  their  ranks  is  open  practically  to 
all  men.  But  even  under  these  favorable 
conditions  the  number  of  men  who  rise 
above  the  treadmill  of  daily  routine,  whose 
minds  reach  out  to  devise  new  mechanical 
appliances,  great  economies  in  railway  and 
industrial  management,  and  financial  pro- 
jects which  carry  out  these  economies, 
must  ever  remain  a  small  fraction  of  the 
whole  community.  This  being  the  case, 
the  vital  question  is  whether  it  is  desir- 
able to  encourage  the  efforts  of  these  men 
or  to  discourage  them. 

How  mighty  is  the  influence  of  these 
few  minds, —  the  inventors,  the  captains 
of  industry,  the  resourceful  authors  of 
new  financial  combinations, —  upon  na- 
tional economic  progress  is  realized  by 


64     Wall  Street  and  the  Country 

few.  Plodding  industry,  which  must  ever 
be  the  virtue  of  the  mass  of  men,  ac- 
complishes much  ;  it  is  the  foundation 
upon  which  all  else  is  built.  But  plod- 
ding industry  alone  does  not  utilize  new 
forces;  it  does  not  harness  Niagara;  it 
does  not  keep  a  nation  at  the  forefront 
in  the  race  with  industrial  rivals.  The 
Chinese  and  several  of  the  Latin  peoples 
are  perhaps  to-day  the  equals,  if  not  the 
superiors,  of  Americans  in  their  willing- 
ness to  work  and  save  ;  but  these  quali- 
ties are  not  sufficiently  supplemented  by 
those  great  powers  of  invention,  initiative, 
and  combination  which  give  dominance 
in  the  modern  world. 

The  few  who  consecrate  themselves  to 
the  development  of  these  higher  qualities 
do  it  often  at  the  sacrifice  of  that  ease  of 
mind  and  domestic  comfort  which  is  the 
happy  ideal  of  the  normal  man.  When 
the  clerk,  who  is  content  with  his  salary 
and  his  home,  quits  work  at  four  or  five 
o'clock,  he  usually  leaves  behind  him  all 
thought  of  his  occupation,  and  he  often 
leaves  behind  him,  still  busy  at  his  desk, 


The  Trusts  and  the  Public      65 

the  captain  of  industry  from  whose  wak- 
ing and  sleeping  hours  are  never  absent 
the  worry  over  competition,  the  mental 
struggle  for  new  methods  of  giving  econ- 
omy and  efficiency  to  labor  and  to  the 
distribution  of  capital. 

It  is  the  numbers  and  the  success  of 
these  men, —  their  ability  to  work  un- 
fettered in  a  free  economic  field, —  which 
determines  whether  a  nation  shall  be  great 
or  little,  whether  it  shall  advance  or  re- 
cede,—  whether  its  cities  shall  house 
throbbing  life,  like  London  or  New  York, 
or  only  gloomy  monuments  of  a  buried 
past,  like  Carthage,  Tyre,  or  Rome  to- 
day. Great  is  the  function  of  creation,— 
the  greatest  power  given  by  God  to  man. 
It  is  a  power  which  is  rarely  lodged  in 
the  State,  and  which,  if  assumed,  usually 
brings  forth  ill-formed,  impotent,  herma- 
phrodite shapes.  It  is  a  truth  which 
should  never  be  obscured,  that  the  ut- 
most exercise  of  power  by  the  modern 
State  rarely  results  in  creation.  It  may 
appropriate  the  creations  of  others;  it 
may  sometimes  make  wise  use  of  their 


66      Wall  Street  and  the  Country 

creations ;  but  usually  its  power,  even 
when  wisely  used,  is  simply  repressive 
and  destructive, —  it  is  not  creative.  Jeal- 
ously, therefore,  should  its  encroachments 
be  watched,  that  it  may  not  stifle  or  re- 
press that  creative  power  which  is  the 
seed  of  the  growth  of  nations. 

It  should  not  be  forgotten  that,  palpa- 
ble fraud  aside,  these  men  with  the  genius 
for  invention  and  combination  cannot  suc- 
ceed themselves  without  giving  some- 
thing to  the  community.  Even  some  of 
their  operations  which  seem  questionable 
cannot  be  well  restricted  by  law  unless 
their  entire  activity  is  to  be  restricted. 
To  issue  common  stock  which  is  not  as 
well  secured  as  preferred  stock  or  bonds 
is  not  fraud.  On  the  contrary,  to  the 
merest  tyro  in  finance  the  fact  is  pro- 
claimed by  such  an  issue  that  it  does  not 
claim  to  be  as  good  as  preferred  stock  or 
bonds.  Those  who  buy  it  are  not  en- 
titled to  much  sympathy  where  they  enter 
the  stock  market  simply  as  gamblers  and 
not  even  as  intelligent  speculators  upon 
market  conditions,  in  the  hope  that  they 


The  Trusts  and  the  Public      67 

will  profit  by  some  other  man's  blunder 
and  will  put  in  their  own  pockets  an 
unearned  increment  which  he  has  lost. 

The  State  cannot  correct  such  folly  as 
this  except  by  interference  which  would 
stifle  enterprise.  The  men  who  conceive 
such  enterprises  and  who  have  the  capital 
or  the  courage  to  take  risks  are  the  ones 
to  whom  the  profit  or  the  loss  should 
accrue.  If  other  men  having  money 
which  they  can  afford  to  lose  see  fit  to 
share  with  them  the  risks  of  loss  or  the 
possibilities  of  profit,  there  is  no  reason 
why  the  law  should  intervene.  Only  by 
taking  such  risks  does  the  world  make 
progress.  The  man  who  invents  some- 
thing which  does  not  involve  a  real 
economy, — whether  it  is  a  mechanical 
device,  a  parallel  railway  line  or  an  in- 
flated and  useless  "  merger,"  -  -  cannot 
take  anything  for  himself  from  the  com- 
munity as  a  whole  if  his  project  involves 
no  net  gain  to  the  community.  If  there 
is  no  net  gain,  he  loses  what  he  invests 
in  the  enterprise.  If  there  is  a  net  gain, 
then  the  question  reduces  itself  to  this, — 


68      Wall  Street  and  the  Country 

whether  its  present  distribution  shall  be 
so  changed  that  the  public  shall  get  a 
larger  share  of  the  fruits  of  this  man's 
thought  and  risk  and  he  shall  get  a  smaller 
share.  Under  the  least  favorable  con- 
ditions, the  public,  as  consumers,  cannot 
fail  to  obtain  some  share,  since  it  is 
necessary  to  offer  them  something  more 
economical  than  they  have  had  before  in 
order  to  induce  them  to  accept  the  thing 
which  is  new. 

If  a  man  invents  a  new  engine  which 
is  more  costly  and  less  economical  in 
operation  than  the  old  ones,  no  railway 
company  will  buy  it  from  him,  however 
skilful  and  interesting  its  mechanism.  If 
a  shopkeeper  offers  a  new  device  for 
raising  bread,  no  housewife  will  buy  it 
more  than  once  if  she  finds  that  it  costs 
more  and  yields  poorer  results  than  the 
device  she  has  been  using.  The  new 
device  must  be  either  offered  at  a  lower 
cost  or  with  a  higher  degree  of  economy 
and  efficiency  than  the  old  in  order  to 
find  a  market.  The  principle  may  seem 
less  simple  when  extended  to  the  forma- 


The  Trusts  and  the  Public      69 

tion  of  stock  companies  and  the  floating 
of  preferred  securities,  debenture  stock, 
and  convertible  bonds,  but  its  essence  is 
the  same.  The  man  who  perfects  a  new 
system  of  railway  management  or  a  new 
financial  combination  cannot  profit  in  the 
long  run  if  the  enterprise  itself  does  not 
involve  some  increase  in  the  producing 
power  of  the  community  or  some  economy 
in  the  use  or  distribution  of  capital. 

For  the  consumer,  therefore,  it  is  doubt- 
ful if  further  State  intervention  would 
bring  permanent  benefits.  Spoliation 
might  profit  him  for  a  moment,  but  only 
to  make  his  last  state  worse  than  his  first 
by  suppressing  the  spirit  of  improvement 
which  is  the  ultimate  source  of  progress. 
What  the  State  should  do,  if  it  goes  be- 
yond its  present  functions,  is  to  give  an 
economic  education  to  those  who  desire 
to  enter  the  financial  world.  It  should 
teach  them  the  fundamental  principles 
that  the  dividends  of  an  enterprise  are 
inversely  to  its  safety  ;  that  speculation 
on  margins  should  only  be  indulged  in 
when  one  has  money  to  lose ;  and  that 


70      Wall  Street  and  the  Country 

investments  should  be  made  only  after 
careful  study  of  the  value  of  properties 
from  the  sources  of  publicity  which  already 
lie  open  to  him  who  cares  to  read  them. 

Upon  the  question  whether  larger  pow- 
ers to  control  corporations  should  be  con- 
ferred on  the  Federal  authorities  there 
are  also  two  sides.  With  the  unification 
of  national  life  and  the  wiping  out  of 
distances  by  the  railway  and  the  tele- 
graph, there  is  much  to  be  said  in  favor 
of  uniformity  in  business  methods  and 
control.  Uniformity  always  has  a  charm 
for  the  type  of  mind  which  is  severely 
logical.  England  has  a  general  corpora- 
tion law.  Issues  of  new  stock  and  bonds 
are  recorded  at  Somerset  House  and  the 
aggregate  corporate  capital  of  the  nation 
can  be  ascertained  there.  But  in  Eng- 
land corporations  are  not  to  any  appre- 
ciable extent  the  playthings  of  politics. 
The  laws  regarding  corporations  are 
largely  influenced  there  by  the  crystallized 
opinion  of  experts.  Rarely,  if  ever,  since 
England  attained  her  commanding  in- 
dustrial position  has  the  question  of  con- 


The  Trusts  and  the  Public      7* 

trolling  corporations  been  a  subject  of 
division  between  Lombard  Street,  where 
the  corporations  are  financed,  and  the 
agricultural  interests  of  Northumberland 
or  Devonshire.  Never  perhaps  in  mod- 
ern times  has  an  organized  campaign  been 
made  for  the  regulation  of  corporations 
against  the  opinions  of  "  Lombard  Street " 
and  upon  the  ground  that  those  opinions 
were  unworthy  of  consideration. 

If  similar  conditions  existed  in  this 
country — if  the  views  of  "  Wall  Street" 
on  changes  in  the  corporation  law  were 
always  attentively  listened  to  at  Wash- 
ington and  were  accepted  as  a  guide  in 
framing  legislation,  subject  only  to  the 
modifications  suggested  by  disinterested 
economic  experts — then  perhaps  legisla- 
tion which  was  at  once  sane  and  strong 
might  be  secured  from  the  fountain-head 
of  Federal  power.  There  is  hardly  any 
more  drastic  legislation  in  the  world  than 
that  of  the  English  companies  acts  against 
the  formation  of  fraudulent  and  unsound 
companies ;  but  it  is  legislation  intended 
for  the  protection  of  the  investor,  with 


72      Wall  Street  and  the  Country 

few  traces  of  a  purpose  to  hamper  legiti- 
mate companies  in  the  conduct  of  their 
business  with  the  end  of  regulating  the 
prices  of  their  products.  This  sort  of  reg- 
ulation, which  in  Great  Britain  has  accom- 
panied centralized  control  of  corporations, 
is  hardly  that  which  appeals  to  those  who 
seek  to  diminish  corporate  power  in  the 
United  States.  The  last  thing  in  the 
world  to  which  they  wish  to  give  weight 
is  the  opinion  of  Wall  Street  or  even  of 
the  anathematized  students  of  abstract 
economics. 

While  it  does  not  perhaps  follow  from 
the  example  of  Great  Britain  that  sub- 
jecting corporations  to  Federal  control 
would  give  them  more  power  over  legis- 
lation than  they  now  possess,  there  are 
forces  which  might  be  brought  into  play 
which  would  tend  towards  this  result. 
There  is  reason  to  fear  also  that  this  influ- 
ence would  not  be  felt  in  the  same  direct 
and  open  way  as  in  Great  Britain,  where 
the  influence  of  u  the  City"  is  considered 
legitimate  and  goes  unremarked,  but  that 
a  less  open  and  more  questionable  power 


The  Trusts  and  the  Public      73 

would  be  acquired  by  the  monied  interests 
when  they  had  to  deal  with  a  single  legis- 
lative body,  instead  of  dealing  as  they  do 
to-day  with  forty-five. 

The  concentration  at  Washington  of 
all  power  over  corporations,  including  the 
granting  of  franchises  by  law,  their  regu- 
lation by  executive  boards,  and  their  in- 
terpretation by  Federal  courts,  would 
make  possible  a  crystallization  of  the 
power  of  corrupt  influences  such  as  has 
never  before  been  possible  in  the  his- 
tory of  the  world.  It  would  surpass  in 
some  ways  the  concentrated  power  of 
corruption  which  was  practised  at  Rome 
when  Jugurtha  was  able  to  declare  it 
a  city  where  everything,  even  national 
honor,  was  sold,  and  where  republican 
government  finally  perished  because  of 
the  enormous  bribes  which  were  offered 
to  the  voters  by  the  generals  and  specula- 
tors who  had  appropriated  the  spoils  of 
the  world.  The  advocates  of  sweeping 
changes  in  the  control  of  corporations 
should  at  least  measure  the  possibilities  of 
danger  in  transferring  to  the  Federal  cap- 


74      Wall  Street  and  the  Country 

ital  the  great  forces  of  corruption  which 
make  our  city  governments  in  many  cases 
the  plague-spots  of  our  political  system 
and  which  make  State  Legislatures  too 
often  the  tools  of  those  who  seek  to  buy 
great  franchises. 

Public  opinion,  if  concentrated  upon 
Washington,  instead  of  diffused  over 
forty-five  State  capitals,  would  undoubt- 
edly break  out  at  times  in  resentment 
against  some  glaring  abuse  ;  but  would  it 
be  able  to  follow  all  the  sinuous  paths  of 
corrupt  influences  through  committee- 
rooms  and  executive  offices  ?  Men  in 
public  office  are  only  human.  If  the 
prospect  of  a  few  thousands  going  to  fav- 
ored contractors  was  sufficient  recently  to 
seduce  the  virtue  of  several  of  the  under- 
paid heads  of  bureaus  in  the  Post-office 
Department  and  to  permit  them,  through 
complacent  collusion,  to  carry  on  frauds 
for  years  without  discovery,  what  would 
be  the  influence  upon  a  bureau  of  corpo- 
rations of  projects  involving  millions,— 
where  the  change  of  a  comma  or  a  phrase, 
even  a  not  unreasonable  delay  in  making 


The  Trusts  and  the  Public      75 

a  decision, — might  enrich  a  corrupt  or 
weak  official,  with  hardly  the  possibility 
of  detection  ? 

Every  financier  knows  how  important 
are  what  seem  to  be  most  trifling  things 
in  determining  the  value  of  a  franchise  or 
in  getting  ahead  of  a  competitor.  If  a 
comfortable  fortune  were  the  compensa- 
tion sometimes  attainable  for  merely  de- 
laying or  hastening  a  decision,  who  shall 
say  that  Federal  officials  at  Washington, 
with  salaries  ranging  from  $2500  up  to 
$4000,  for  the  most  exacting  and  respon- 
sible duties,  would  always  be  impervious 
to  such  temptation  ?  They  would  hold  in 
their  hands  a  power  of  extortion  such  as 
has  never  been  surpassed. 

How  serious  an  obstacle  may  be  inter- 
posed to  corporate  plans  even  by  delay  is 
shown  by  the  long  litigation  over  the 
United  States  Steel  bonds  which  were  is- 
sued in  exchange  for  preferred  stock.  It 
was  a  commendable  act  on  the  part  of 
Mr.  Morgan  to  determine  to  resist  the 
buccaneers  who  undertook  to  check  the 
plans  of  the  corporation  by  "  strike  suits," 


76      Wall  Street  and  the  Country 

but,  in  making  the  decision  to  fight  rather 
than  to  pay,  he  probably  condemned  the 
corporation  by  the  decline  in  the  value  of 
the  bonds  between  the  date  when  their 
issue  was  first  proposed  and  the  date 
when  the  decision  of  the  courts  finally 
permitted  them  to  be  put  upon  the  market, 
to  a  loss  of  many  millions. 

When  to  the  risk  of  individual  corrup- 
tion at  Washington  came  to  be  added  that 
of  political  corruption,  the  dangers  lurking 
in  concentrated  Federal  control  of  corpo- 
rations would  be  even  more  serious.  The 
power  to  assess  the  Federal  officeholders 
has  been  availed  of  more  than  once  to  fill 
the  campaign  chest  of  a  party  in  office. 
If  this  power  of  assessment  could  be  ex- 
tended to  the  great  corporations  of  the 
country,  under  the  threat  that  they  would 
get  too  much  "  publicity  "  in  its  most  har- 
assing form  if  they  did  not  contribute, 
representative  government  would  be  sub- 
ject to  a  menace  greater  than  any  it  has 
yet  encountered  since  it  was  born  in  Great 
Britain  eight  centuries  ago  in  the  struggle 
between  King  and  Parliament. 


The  Trusts  and  the  Public      77 

A  party  once  installed  in  power,  using 
without  scruple  its  ability  to  levy  contri- 
butions upon  the  corporations,  and  to  dis- 
tribute these  levies  like  the  Roman  corn- 
grants,  as  gratuities  among  the  poorer 
voters,  would  be  a  self-perpetuating  body 
more  absolute,  for  a  time  at  least,  than 
the  most  absolute  of  voting  trusts.  For 
the  latter  operates  under  the  law  and 
subject  to  the  law,  while  the  former  would 
be  above  all  law  or  fear  of  law  except 
that  of  the  paying  power  of  its  victims. 
The  American  people  should  at  least  be 
very  sure  that  the  evils  to  be  cured  are 
greater  than  those  which  the  remedy  itself 
would  bring,  before  they  turn  with  too 
light  a  heart  to  so  portentous  a  change  in 
the  constitutional  system  of  checks  and 
balances  established  by  our  fathers,  with 
blood  and  prayer,  that  ours  might  be  a 
Government  of  laws  and  not  of  men. 

The  considerations  which  are  presented 
here  do  not  constitute  an  argument  against 
intelligent  discussion  of  further  legislation 
on  the  problem  of  the  corporations. 
Within  the  States  the  corporation  laws 


78      Wall  Street  and  the  Country 

can  probably  be  improved  in  many  cases 
in  the  interest  of  the  investor.  In  the  na- 
tion perhaps  some  simple  laws  might  be 
enacted  for  the  protection  of  the  consumer 
^-without  disturbing  the  rights  of  the  share- 
holder. It  would  be  as  idle  for  the  share- 
holders i'n  corporations  to  claim  that  we 
are  already  living  in  an  ideal  world  as  it 
would  be  for  their  critics  to  seek  to  go 
back  to  the  time  when  limited  liability  was 
almost  unknown  and  when  safe  invest- 
ments were  confined  to  Government 
bonds. 

Few  will  contend  that  we  are  living  in 
a  world  in  which  economic  forces  can  be 
trusted  to  work  out  absolutely  unfettered 
by  law  those  economic  harmonies,  perfect 
as  the  music  of  the  spheres,  which  were 
the  dream  of  Bastiat.  What  is  here 
written  is  set  down  simply  to  promote  in- 
telligent discrimination  in  the  effects  of 
proposed  legislation,  careful  weighing  of 
the  hidden  dangers  as  well  as  the  obvious 
results  of  extending  Federal  control  too  far 
and  too  rapidly,  and  dispassionate  consid- 
eration of  all  aspects  of  the  great  problem 


The  Trusts  and  the  Public      79 

of  best  protecting  the  individual  American 
without  impairing  his  freedom  of  thought 
and  action  and  his  right  to  the  proceeds 
of  his  labor.  There  should  be  clearer 
thinking,  less  blind  hostility  to  wealth, 
whether  in  individual  or  corporate  form, 
and  absolute  definitions  of  what  is  sought 
by  new  measures,  whether  simply  protec- 
tion for  the  investor  or  the  consumer  or 
the  destruction  of  industries  and  property. 
Those  who  are  not  impelled  by  the  latter 
purpose  should  take  care  not  to  be  made 
cat's-paws  by  those  who  are. 

If  momentary  prejudice  and  desire  for 
political  capital  are  excluded  from  consid- 
eration, it  is  at  least  questionable  whether 
the  time  is  ripe  for  new  legislation  of  a 
drastic  character  in  regard  to  corporations. 
It  is  apparent  that  important  interests  are 
timorous  as  to  the  effects  of  such  legisla- 
tion upon  business  and  investments. 
Whether  they  are  right  or  wrong  in  this 
timidity,  it  may  fairly  be  said  that  the 
burden  of  proof  in  favor  of  any  specific 
Federal  law  should  be  put  upon  those 
who  advocate  it. 


8o    Wall  Street  and  the  Country 

Business  interests  should  not  stand  in 
the  way  of  the  national  life  or  well-being. 
Where  a  clear  need  exists  for  legislation 
which  is  injurious  or  dangerous  to  them, 
those  interests  must  give  way.  Their 
willingness  to  submit  to  such  a  sacrifice 
has  been  shown  on  many  occasions.  To 
name  but  one,  in  1861  the  associated 
banks  of  New  York  willingly  came  to  the 
aid  of  the  Government  when  a  public  loan 
could  not  well  be  floated  and  acceded  to 
the  demand  that  they  should  pay  the  in- 
stalments of  their  temporary  loan  into  the 
Sub-treasury  in  coin  instead  of  by  the 
usual  methods  of  transferring  credit,  al- 
though they  well  knew  and  emphatically 
declared  that  in  submitting  to  this  ill- 
advised  demand  of  Secretary  Chase,  they 
were  impairing  their  coin  reserves  and  in- 
viting the  suspension  of  specie  payments 
with  its  Pandora's  box  of  evils. 

If  a  similar  necessity  exists  to-day  for 
Federal  legislation  inimical  to  business 
interests,  those  interests  should  give  way  ; 
but  if  there  is  no  such  clear  necessity,  and 
if  the  remedies  for  supposed  evils  are  in- 


The  Trusts  and  the  Public      81 

choate  and  their  results  are  dubious,  it  is 
not  apparent  why  legislation  should  be  in- 
sisted upon  pending  careful  consideration 
of  the  entire  subject  in  all  its  bearings, 
economic,  political,  and  financial,  includ- 
ing observation  of  like  experiments  in 
other  countries.  When  ills  assail  the 
State,  her  best  citizens  are  bound  to  seek 
for  remedies  ;  but  when  such  remedies  are 
proposed,  the  burden  should  lie  upon 
their  proposers  to  prove  that  they  are 
real  remedies  and  not  quack  ones.  In 
the  absence  of  a  great  and  present  menace 
to  the  national  life,  they  should  be  adopted 
only  after  they  have  been  carefully  weighed 
by  sane  and  temperate  men  and  their  ben- 
efits in  their  minds  clearly  and  greatly 
outweigh  the  risks  of  change. 

It  is  delicate  work  to  experiment  with 
industry.  Business  men  and  financiers 
are  trained  through  life  for  such  work. 
They  must  by  the  nature  of  their  occupa- 
tion make  experiments  and  take  the  con- 
sequences of  their  blunders  and  their 
discoveries.  It  is  doubtful  if  Government 
officials  can  make  these  experiments  more 


82      Wall  Street  and  the  Country 

skilfully.  If  tempted  to  use  their  great 
powers  rashly,  without  fully  weighing  the 
consequences,  they  should  reflect  that 

"  It  is  excellent 

To  have  a  giant's  strength  ;  but  it  is  tyrannous 
To  use  it  like  a  giant," 

when  by  so  doing  they  may  arrest  the 
wheels  of  industry,  spread  terror  and  par- 
alysis through  the  world  of  trade  and 
above  all  stifle  and  pervert  that  fine  spirit 
of  foresight,  initiative,  and  intelligent  dar- 
ing which  are  the  distinguishing  traits  of 
the  American  man  of  business,  and  have 
made  possible  the  imperial  progress  of  our 
country  during  more  than  a  century  of 
internal  industrial  freedom. 


Ill 


THE  FUNCTION  OF  THE  STOCK  AND  PRODUCE 
EXCHANGES 

ONE  of  the  most  persistent  of  the  halluci- 
nations which  prevail  among  people  other- 
wise apparently  lucid  and  well  informed 
is  the  conception  that  operations  on  stock 
and  produce  exchanges  are  pure  gambling. 
A  moment's  reflection,  Cit  would  seem,  j 
might  convince  such  persons  that  a  func- 
tion which  occupies  so  important  a  place 
in  the  mechanism  of  modern  business 
must  be  a  useful  and  necessary  part  of 
that  mechanism^  Jbut  reflection  seems  to 
have  little  part  in  the  intellectual  equip- 
ment of  the  assailants  of  organized  mark- 
ets. Only  recently  I  picked  up  a  book 
purporting  to  treat  of  the  subject  of  eth- 
ics, and  found  this  remarkable  passage  : 

"  If,  instead  of  betting  on  something  so  small  as 
falling  dice,  one  bets  on  the  rise  and  fall  of  stocks 
83 


84      Wall  Street  and  the  Country 

or  on  the  price  which  wheat  will  reach  some  months 
hence,  and  if  by  such  betting  one  corners  the  com- 
munity in  an  article  essential  to  its  welfare,  throw- 
ing a  continent  into  confusion,  the  law  will  pay  not 
the  slightest  attention.  A  gambling  house  for  these 
larger  purposes  may  be  built  conspicuously  in  any 
city,  the  sign  'Stock  Exchange'  be  set  over  its 
door,  influential  men  appointed  its  officers,  and  the 
law  will  protect  it  and  them  as  it  does  the  churches. 
How  infamous  to  forbid  gambling  on  a  small  scale 
and  almost  to  encourage  it  on  a  large!" 

The  writer  who  undertook  to  discuss 
the  stock  exchange  in  that  manner  in  a 
book  on  ethics  might  very  well  have  de- 
voted himself  less  earnestly  to  the  smaller 
refinements  of  ethical  definition  and  re- 
verted to  the  ancient  maxim,  "  Thou  shalt 
not  bear  false  witness  against  thy  neigh- 
bor." What  he  says  is  a  hodgepodge  of 
misconceptions.  If  it  be  true  that  betting 
on  the  rise  and  fall  of  stocks  be  gambling, 
as  it  undoubtedly  is,  then  what  follows  has 
no  relation  to  this  first  suggestion.  To 
one  having  any  knowledge  of  the  subject- 
matter,  the  two  parts  of  the  first  sentence 
are  inconsistent  with  each  other  and  mu- 
tually destructive.  Pure  betting  is  done 


Functions  of  the  Exchanges      85 

in  bucket  shops,  is  of  no  use  to  the  com- 
munity, is  destructive  to  the  morals  and 
pockets  of  young  men,  and  cannot  be  too 
severely  censured.  But  such  betting  is 
not  carried  on  in  buildings  bearing  the 
sign  "  Stock  Exchange."  It  has  nothing 
to  do  with  the  legitimate  processes  of  the 
exchanges.  Moreover,  one  cannot  corner 
the  community  on  any  "  article  essential 
to  its  welfare  "  by  betting  in  bucket  shops. 
He  may  perhaps  do  it  within  certain  limits 
by  actual  transactions  on  the  produce  ex- 
changes, because  they  involve  the  right  to 
demand  delivery.  If  it  were  true,  how- 
ever, that  no  such  deliveries  were  contem- 
plated or  could  be  made,  as  is  usually  the 
case  in  bucket-shop  gambling,  it  would  no 
more  be  possible  to  corner  the  supply  of 
wheat  by  betting  on  its  future  price  than 
it  is  possible  for  a  politician  to  carry  the 
election  his  way  by  laying  heavy  odds  on 
his  candidate.  His  bets  would  not  make 
votes,  and  merely  betting  on  the  prices 
of  a  commodity  would  not  influence  the 
supply. 

The  fact  that  such  confusion  of  ideas 


86      Wall  Street  and  the  Country 

prevails,  and  that  the  stock  and  produce 
exchanges  continue  to  be  looked  upon  by 
many  good  people  as  a  sort  of  adjunct  of 
Monte  Carlo,  justifies  an  occasional  re- 
statement of  the  essential  part  which  these 
exchanges  play  in  the  mechanism  of  busi- 
ness. To  take  the  subject  up  from  an 
elementary  standpoint,  it  is  well  to  say  a 
word  regarding  the  function  of  stock  com- 
panies. The  discovery  was  made  long 
before  our  time  that  a  piece  of  property 
or  a  new  enterprise  could  be  given  mo- 
bility and  divisibility  by  putting  the  title 
to  its  ownership  into  transferable  shares. 
The  creation  of  share  companies  enables 
the  small  capital  of  individuals  to  be 
gathered  into  the  large  funds  necessary 
to  build  factories  and  railways.  It  divides 
the  risk  of  an  undertaking  among  many 
persons,  and  places  the  enterprise  beyond 
the  accidents  of  a  single  human  existence 
by  giving  it  a  fictitious  body  dowered  by 
law  with  perpetual  life. 

To  give  mobility  to  the  shares  thus 
created,  it  is  necessary  that  they  should 
have  a  market.  It  would  be  compara- 


Functions  of  the  Exchanges      87 

tively  useless  to  divide  an  enterprise  into 
shares  if  there  were  no  means  of  transfer- 
ring these  shares  readily  from  hand  to 
hand.  Therefore,  a  market  for  the  shares 
and  bonds  issued  by  such  enterprises  is 
one  of  the  vital  necessities  of  their  crea- 
tion. Such  a  market  is  afforded  by  the 
stock  exchange.  The  fact  that  the  stock 
market  is  sometimes  abused  by  people 
who  go  into  it  in  a  gambling  spirit,  who 
know  nothing  of  its  purposes,  and  who 
are  incapable  of  understanding  the  mighty 
influences  which  dominate  it,  is  no  reason 
for  treating  it  as  a  harmful  excrescence 
on  the  body  politic.  Railways  have  not 
been  abolished  because  a  locomotive  runs 
over  men  occasionally  and  kills  them ; 
banks  have  not  been  abolished  because 
one  occasionally  suspends  ;  and  if  enlight- 
ened judgment  had  been  used,  legislation 
would  never  have  been  enacted  in  Ger- 
many and  seriously  considered  in  other 
countries  for  hampering  the  operations  of 
the  stock  and  produce  markets. 

It  is  not  proposed  in  this  article  to  deal 
with   the   abuses  which  have  sometimes 


88      Wall  Street  and  the  Country 

occurred  through  the  manipulation  of  or- 
ganized markets  for  improper  purposes. 
It  is  proposed  only  to  set  forth  the  funda- 
mental principles  which  prove  the  value 
of  these  markets  to  modern  society  and, 
therefore,  afford  their  reason  for  being. 
The  wrongs  which  have  been  perpetrated 
on  the  exchanges  have  come  largely  from 
perversion  of  their  essential  functions  as 
the  public  mirror  of  values.  It  has  been 
the  dream  of  great  manipulators  to  warp 
this  mirror  so  that  it  would  mislead  the 
public  to  their  own  profit.  The  success 
which  such  manipulations  have  attained 
has,  however,  been  greatly  exaggerated  in 
the  public  mind.  It  is  truthfully  declared 
by  Courtois,  in  his  Traite1  des  Operations 
de  Bourse  et  de  Change,  that  a  fictitious 
movement,  even  on  the  part  of  the  most 
powerful  operators,  cannot  overcome  the 
natural  tendencies  of  values,  and  that  the 
most  that  can  be  accomplished  is  to  some- 
times hasten  or  retard  slightly  the  certain 
effect  of  a  foreseen  event. 

The  fundamental   function   of  the  ex- 
changes, as  already  suggested,  is  to  give 


Functions  of  the  Exchanges      89 

mobility  to  capital.  Without  them  the 
stock  and  bonds  of  the  share  company 
could  not  be  placed  to  advantage.  No- 
body would  know  what  their  value  was  on 
any  given  day,  because  the  transactions 
in  them,  if  they  occurred,  would  be  pri- 
vate and  unrecorded.  The  opportunities 
for  fraud  would  be  multiplied  a  hundred- 
fold as  compared  with  the  publicity  which 
is  given  under  present  conditions  to  the 
least  movements  on  the  stock  exchange. 
The  mobility  for  capital  afforded  by  the 
limited-liability  company  would  be  meagre 
and  inadequate  if  the  holder  of  its  bonds 
and  shares  did  not  know  that  at  any 
moment  he  could  take  them  to  the  ex- 
changes and  sell  them  for  a  price.  He 
cannot  be  misled  as  to  this  price,  because 
every  newspaper  in  the  land,  if  the  secur- 
ity is  one  of  importance,  gives  him  each 
morning  the  value  which  it  possessed  the 
day  before  in  the  markets  of  the  world. 
The  holder  of  it  thus  knows  what  the 
average  judgment  of  hundreds  of  men  is 
upon  the  value  of  that  security.  If  it 
were  not  thus  quoted,  he  would  have  to 


90      Wall  Street  and  the  Country 

rely  upon  the  judgment  of  a  few  people, 
expressing  their  opinion  privately  and 
perhaps  interested  in  misleading  him. 

The  publicity  which  prevails  in  stock- 
exchange  quotations  gives  the  holder  of  a 
security  not  only  the  direct  benefit  afforded 
by  such  publicity  for  the  moment,  but 
gives  him,  free  of  charge,  the  opinion  of 
the  most  competent  financiers  in  the  cap- 
itals of  Europe  and  America.  If  they 
were  dealing  with  him  privately,  instead 
of  through  organized  markets,  they  might 
withhold  the  information  which  years  of 
study  and  observation  of  railway  proper- 
ties and  industrial  enterprises  have  put  in 
their  possession  ;  but  when  they  go  into 
the  market  and  bid  a  price  for  securities, 
by  that  very  act  they  give  their  advice 
free  of  charge.  That  quoted  price  stands 
as  a  guide  to  the  most  ignorant  holder  of 
these  securities  as  to  their  value  in  the 
present  and  their  probable  value  in  the 
future. 

The  second  benefit  of  organized  mark- 
ets is  in  affording  a  test  of  the  utility  to 
the  community  of  the  enterprises  which 


Functions  of  the  Exchanges      91 

solicit  the  support  of  investors.  The 
judgment  of  experts  is  there  expressed, 
through  the  medium  of  price,  on  the  util- 
ity of  the  object  dealt  in.  If  a  railway  is 
built  in  the  wilderness  of  Manitoba  and 
proves  unprofitable,  the  investor  does  not 
need  to  hunt  up  people  in  Manitoba  to 
ask  how  much  freight  and  how  many  pas- 
sengers it  is  carrying  ;  he  has  only  to  look 
at  the  quotations  for  its  bonds  or  stock  on 
the  New  York  Stock  Exchange  to  know 
at  once  what  is  the  judgment  of  experts 
on  its  value  as  a  commercial  enterprise. 
The  prudent  investor  does  not  buy  stocks 
which  are  declining,  unless  he  has  confi- 
dence in  their  future  value.  He  withholds 
his  capital  from  that  type  of  investment. 
If  he  finds  that  the  bonds  or  shares 
of  cotton  mills  are  generally  declining 
on  the  market,  he  makes  up  his  mind 
that  there  is  no  further  demand  for  cotton 
mills,  and  does  not  snap  at  the  prospec- 
tuses which  ask  him  to  invest  in  them.  If 
he  finds  that  certain  railway  securities  are 
persistently  declining,  he  concludes  that 
they  have  acquired  too  high  a  price  in 


92      Wall  Street  and  the  Country 

relation  to  the  return  which  they  pay,  and 
that  there  is  no  need  to  increase  railway 
equipment  in  their  localities  by  offering 
capital  for  new  railway  shares. 

All  this  information  is  put  before  the 
investor  in  a  simple  table  of  figures,  which 
any  man  may  read,  as  a  result  of  the 
modern  organization  of  the  stock  market 
and  the  publicity  of  what  is  done  there. 
It  would  be  practically  unattainable  by 
any  other  system.  Thus  through  the 
publicity  of  knowledge  and  prices,  the 
bringing  of  a  multitude  of  fallible  judg- 
ments upon  this  common  ground  to  an 
average,  there  is  afforded  to  capital 
throughout  the  world  an  almost  unfailing 
index  of  the  course  in  which  new  produc- 
tion should  be  directed. 

Suppose  for  a  moment  that  the  stock 
markets  of  the  world  were  closed,  that  it 
was  no  longer  possible  to  learn  what  rail- 
ways were  paying  dividends,  what  their 
stocks  were  worth,  how  industrial  enter- 
prises were  faring, — whether  they  were 
loaded  up  with  surplus  goods  or  had 
orders  ahead.  Suppose  that  the  informa- 


Functions  of  the  Exchanges      93 

tfon  afforded  by  public  quotations  on  the 
stock  and  produce  exchanges  were  wiped 
from  the  slate  of  human  knowledge.  How 
would  the  average  man,  how  even  would 
a  man  with  the  intelligence  and  foresight 
of  a  Pierpont  Morgan,  determine  how  new 
capital  should  be  invested?  He  would 
have  no  guide  except  the  most  isolated 
facts  gathered  here  and  there  at  great 
trouble  and  expense.  A  greater  misdirec- 
tion of  capital  and  energy  would  result 
than  has  been  possible  since  the  organiza- 
tion of  modern  economic  machinery.  Mr. 
Morgan  or  any  other  capitalist  might  be 
expending  millions  of  dollars  in  building 
new  railways  or  cotton  mills  when  there 
was  no  necessity  for  them,  while  a  hundred 
other  industries  beneficial  to  the  public 
were  stagnant  for  lack  of  capital.  There 
would  be  no  safe  guide  as  to  whether  the 
world  needed  more  railroads  and  fewer 
cotton  mills,  or  more  cotton  mills  and 
fewer  railroads.  Great  sums  would  be 
wasted  in  bootless  enterprises,  which 
would  prove  unprofitable  and  carry  down 
their  owners  to  ruin.  All  the  capital 


94      Wall  Street  and  the  Country 

represented,  all  the  labor,  thought,  fore- 
sight, and  inventive  genius  involved  in 
them,  would  be  sacrificed  to  the  lack  of  an 
effective  public  organ  for  pointing  out  the 
direction  in  which  capital  was  needed. 

But  to-day  the  organization  of  the  stock 
market  affords  a  register  of  values  so  sen- 
sitive that  its  very  sensitiveness  and  accu- 
racy are  causes  of  thoughtless  complaint. 
Men  who  plunge  into  the  stock  market 
without  knowing  its  laws,  and  imagine 
that  because  stocks  are  rising  they  will 
always  rise,  complain  because  this  sensitive 
reflector  of  values  responds  suddenly  to 
some  distant  and  unexpected  event  by  a 
decline  in  prices.  Perhaps  in  the  Orient 
there  are  threatenings  of  war  between  two 
great  powers,  which  would  unsettle  the 
relation  between  production  and  consump- 
tion ;  or  in  India  there  is  a  crop  failure, 
which  will  influence  the  price  of  silver, 
and  react  upon  the  finances  of  America. 

It  is  true,  no  doubt,  that  the  stock 
market  sometimes  seems  unduly  sensitive 
to  these  widely  separated  and  isolated 
events,  but  if  one  looks  to  the  fundamental 


Functions  of  the  Exchanges      95 

conditions  which  govern  economic  society, 
it  must  be  clear  that  it  is  better  that  it 
should  be  too  sensitive  than  not  sufficiently 
so.  It  is  better  that  any  rumor  of  war, 
with  a  threatened  cessation  of  production 
and  consumption,  should  be  reflected  on 
organized  markets  than  that  people  should 
go  on  recklessly  investing  capital  in  enter- 
prises which  may  afterwards  prove  unpro- 
ductive. The  stock  market  is  the  great 
governor  of  values,  and  the  determinant 
of  the  relationship  between  production 
and  consumption, — the  guide  which  points 
the  finger  as  to  where  capital  is  needed 
and  where  it  has  ceased  to  be  needed. 

The  very  sensitiveness  of  the  stock 
market  is  one  of  its  safeguards.  Again 
and  again  it  is  declared  in  the  market  re- 
ports that  certain  events  have  been  "  dis- 
counted "  ;  that  the  effect  of  the  death  of 
President  McKinley,  or  promised  peace 
between  Great  Britain  and  the  Boers,  has 
already  produced  in  advance  its  natural 
influence  on  the  stock  exchange ;  and 
when  the  event  actually  happens,  it  re- 
sults in  no  such  great  disturbance  to  values 


96      Wall  Street  and  the  Country 

as  was  expected.  Is  it  not  better  that 
this  discounting  of  future  possibilities 
should  occur, — that  the  effect  of  a  given 
cause  acting  upon  the  market  should  be 
felt  by  graded  steps  instead  of  coming  like 
a  cataclysm  ?  Is  it  desirable  that  capital 
and  production  should  march  blindly  to 
the  edge  of  a  precipice  and  then  leap  off, 
instead  of  descending  a  gradual  decline, — 
that  a  certain  security,  instead  of  falling 
by  degrees,  should  fall  thirty  or  forty  per 
cent  on  the  occurrence  of  some  foretold 
event  ? 

This  foreseeing  and  discriminating  cal- 
culation of  the  effects  of  coming  events, 
known  as  "  discounting  "  of  the  market,  is 
one  of  the  most  useful  functions  of  the 
exchanges.  It  enables  the  man  who  holds 
a  given  security,  and  sees  that  it  is  falling 
in  value,  to  convert  it  into  money  without 
losing  enough  to  be  ruined.  It  enables 
the  prudent  man,  who  believes  that  an 
event  will  not  cause  the  disaster  which 
some  anticipate,  to  hold  on  to  his  securi- 
ties and  even  to  buy  those  of  the  fright- 
ened and  more  excited. 


Functions  of  the  Exchanges      97 

Consider  for  a  moment  the  effect  of 
abolishing  the  produce  exchanges  and 
leaving  events  in  the  wheat  and  cotton 
market  to  have  their  full  influence  when 
they  occur.  What  would  be  the  effect 
upon  the  farmer?  Instead  of  being  able 
day  by  day  to  trace  the  course  of  wheat 
and  cotton,  to  learn  what  supplies  were 
coming  upon  the  market  and  what  the 
effect  upon  prices  would  probably  be  of 
the  crops  of  the  world,  he  would  be  at  the 
mercy  of  every  travelling  factor,  of  every 
unscrupulous  representative  of  some  big 
commission  house  who  could  get  his  ear. 
He  would  be  told  by  them  that  crops  in 
Europe  were  enormous,  that  wheat  and 
cotton  were  going  down,  and  he  had  better 
take  the  price  which  they  offered  to-day. 
Thus  he  might  be  misled  into  selling  at 
much  less  than  the  fair  price  of  his  crop. 
With  no  public  knowledge  of  present  or 
probable  future  events,  he  would  be 
helplessly  at  the  mercy  of  every  idle 
rumor. 

But  to-day,  if  a  cotton  factor  or  un- 
scrupulous agent  of  a  commission  house 


g8      Wall  Street  and  the  Country 

tries  to  mislead  the  farmer,  the  farmer  has 
only  to  turn  to  his  daily  paper  and  say, 
"  There  is  the  judgment  of  all  the  world 
upon  the  present  value  of  my  crop  and 
upon  its  future  value."  If  he  has  reason 
for  not  accepting  that  judgment,  he  is  free 
to  disregard  it,  but  in  any  event  he  is  not 
the  plaything  of  misconception  and  false 
representations  regarding  the  average 
opinion  of  other  experts  interested  in  the 
same  commodity. 

There  is  nothing,  perhaps,  more  valu- 
able to  society  than  this  power  of  the  pro- 
duce exchanges  to  discount  changes  in 
production  and  consumption  of  the  great 
staples  of  food  and  clothing.  The  fact 
that  future  wheat  is  selling  high,  that  there 
is  a  general  belief  that  the  world's  crop  is 
deficient,  acts  not  only  upon  the  farmer 
and  dealer  in  this  commodity,  but  also 
in  a  certain  degree  upon  the  whole  com- 
munity. Prices  are  likely  to  rise,  the  com- 
munity becomes  more  economical  in  the 
use  of  the  product  affected,  and  the  scanty 
supply  in  existence  is  husbanded  during 
the  period  intervening  before  the  harvest- 


Functions  of  the  Exchanges      99 

ing  of  another  crop.  If  it  were  not  so, 
people  would  buy  at  low  prices  while  the 
crop  was  diminishing,  and  the  community 
might  suddenly  face  a  famine  for  which  it 
had  made  no  preparation.  The  opera- 
tion of  the  produce  exchanges  in  thus 
discounting  the  future,  by  gradually  rais- 
ing prices  to  meet  a  scanty  supply,  or 
gradually  letting  them  fall  to  meet  an  ex- 
cessive supply,  is  beneficial  not  merely  to 
producers  and  consumers,  but  to  the  com- 
munity as  a  whole. 

It  matters  little  whether  physical  deliv- 
ery of  the  products  dealt  in  is  made  in  all 
these  cases  or  not.  The  action  taken  by 
speculators,  so  called,  in  buying  and  selling 
wheat  and  cotton  for  future  delivery  is 
simply  the  expression  of  their  judgment 
as  to  certain  future  contingencies.  They 
are  willing  to  pay  for  errors  in  that  judg- 
ment out  of  their  own  pockets.  If,  when 
the  time  comes  at  which  they  have  agreed 
to  deliver  a  certain  quantity  of  wheat  or 
cotton,  the  price  has  gone  higher  than  the 
price  at  which  they  sold,  they  are  bound 
to  make  the  delivery  or  pay  the  difference. 


ioo    Wall  Street  and  the  Country 

But  what  does  it  matter  which  course  they 
pursue  ? 

The  broker  is  only  the  intermediary  in 
any  event.  If  he  has  agreed  to  deliver 
1000  bushels  of  wheat  for  $1000  on  a  given 
date,  and  the  price  rises  to  $1.20  a  bushel, 
he  and  every  producer  know  that  he  can 
obtain  the  wheat  only  at  $1.20  a  bushel, 
or  1000  bushels  for  $1200.  If  it  is  mutu- 
ally convenient  for  the  broker  to  pay  the 
buyer  the  difference  in  cash  which  will 
enable  the  latter  to  buy  the  wheat  at  the 
net  cost  which  he  contracted  for,  it  comes 
to  exactly  the  same  thing  in  the  end  as  if 
the  man  who  had  given  the  order  insisted 
upon  a  physical  delivery  of  the  wheat  by 
the  person  who  promised  him  future  de- 
livery. The  buyer  has  simply  been  in- 
sured. Having  contracted  to  receive  a 
certain  quantity  of  wheat  for  $1000,  he 
gets  it  at  that  net  cost  to  himself.  The 
broker  acts  as  insurer  by  paying  the  dif- 
ference between  the  actual  present  price 
and  the  contract  price  made  with  the 
buyer.  The  latter  is  protected  by  his 
purchase  for  future  delivery  against  the 


Functions  of  the  Exchanges    101 

risk  of  a  rise  which  he  foresaw.  If,  on 
the  other  hand,  the  price  has  fallen  to 
ninety  cents  per  bushel,  it  is  the  same 
to  him  if  the  seller  accepts  ten  cents  per 
bushel  as  the  price  of  the  insurance  he 
granted  and  sends  the  buyer  into  the  open 
market  for  his  wheat.  In  either  case  the 
buyer  obtains  the  wheat  at  the  price  he 
was  willing  to  pay  when  he  originally 
bought,  and  he  has  been  insured  against 
fluctuations  of  price  in  either  direction. 

The  produce  exchanges  thus  afford  a 
form  of  insurance.  They  enable  a  man 
with  contracts  to  execute  in  the  future  to 
ascertain  to-day  what  will  be  the  cost  of 
his  raw  material  in  the  future,  and  to  know 
that  he  will  get  the  raw  material  at  that 
cost,  even  though  it  may  rise  in  the  open 
market  above  the  price  which  he  could 
afford  to  pay  for  it  in  view  of  the  price 
at  which  he  has  contracted  to  deliver 
his  finished  products.  Prudent  dealers  in 
great  staples  go  into  the  market  and  buy 
and  sell  futures  in  such  a  way  as  to  pro- 
tect themselves,  just  as  the  prudent  man 
of  family  goes  to  the  insurance  company 


102    Wall  Street  and  the  Country 

and  pays  a  premium  in  order  to  get  a 
guarantee  that  his  family  will  be  protected 
against  what  may  occur  through  the  failure 
of  his  capacities,  his  disability,  or  his  death. 
In  the  language  of  the  critics  of  the  ex- 
changes, it  might  be  said  that  the  man 
taking  insurance  bets  with  the  insurance 
company  that  he  will  die  sooner  than 
their  mortality  tables  indicate,  and  there- 
by make  a  profit  for  his  family.  The 
operation  is  more  like  betting  than  trans- 
actions on  the  exchanges,  because  insur- 
ance cannot  alter  the  length  of  human 
life.  It  is  simply  a  speculation  on  what 
life  will  be.  But  society  sanctions  insur- 
ance, because  it  distributes  risks  among 
those  who  are  willing  to  assume  them  and 
who  have  made  calculations  which  lead 
them  to  believe  that  they  will  not  on  the 
average  be  losers  by  their  transactions. 
That  is  to  some  extent  the  character  of 
legitimate  dealings  on  the  produce  ex- 
change. The  fact  that  physical  delivery 
by  the  particular  individual  making  the 
sale  is  not  insisted  upon  has  no  bearing 
upon  the  case. 


Functions  of  the  Exchanges    103 

Physical  delivery  is  not  insisted  upon 
in  a  hundred  transactions  which  do  not 
fall  under  the  criticism  of  persons  like  the 
writer  on  ethics  quoted  above.  If  a  retail 
coal  dealer  in  July  agrees  to  deliver  to  a 
patron  in  December  ten  tons  of  coal  at 
a  certain  price,  he  probably  does  it  on 
a  purely  speculative  basis.  He  has  not 
on  hand  the  coal  with  which  to  fulfil  his 
contract  when  the  time  comes.  Does  he 
commit  any  crime  against  the  social  order 
if  he  transfers  the  order  to  the  shipping 
company  and  directs  them  to  make  the 
delivery  direct  from  the  cars  to  the  pur- 
chaser ?  Can  fault  be  found  with  the  fact 
that  the  retailer  does  not  insist  upon  the 
coal  passing  through  his  hands,  involving 
extra  handling  and  expense,  in  order  to 
avoid  the  charge  of  indulging  in  a  specu- 
lative transaction  ? 

Such  an  operation  is  typical  of  what  is 
happening  constantly  on  the  stock  and 
produce  exchanges.  Physical  delivery  is 
made  to  the  people  who  want  the  pro- 
ducts. Between  intermediaries  the  trans- 
actions are  cleared  against  one  another. 


104    Wall  Street  and  the  Country 

The  manufacturer  of  flour  who  has  gone 
into  the  exchange  and  bought  and  sold 
futures  in  wheat,  in  order  to  protect  him- 
self against  an  undue  rise  in  that  product 
after  he  has  made  his  contracts  to  deliver 
flour,  knows  that  all  the  wheat  he  desires 
will  be  delivered  to  him.  He  simply  clears 
his  contracts  at  one  price  against  those  at 
another,  in  order  to  get  the  exact  amount 
he  wants  without  being  obliged  to  receive 
the  excess  physically  on  the  one  hand;  and 
deliver  it  over  to  somebody  else  on  the 
other.  It  is  the  same  principle  of  clearing 
which  runs  through  banking  transactions 
and  through  every  account  at  a  store 
where  transactions  on  two  sides  are  con- 
cerned, and  it  cannot  properly  be  con- 
tended that  there  is  necessarily  anything 
speculative  or  of  the  spirit  of  gambling  in- 
herent in  the  nature  of  such  transactions. 
Another  important  influence  of  the 
stock  exchanges  in  particular,  and  to  some 
extent  perhaps  of  the  produce  exchanges, 
is  that  which  they  exert  upon  the  money 
market.  The  possession  by  any  country 
of  a  large  mass  of  salable  securities  af- 


Functions  of  the  Exchanges    105 

fords  a  powerful  guarantee  against  the 
effects  of  a  severe  money  panic.  If  in 
New  York  there  arises  a  sudden  pressure 
for  money,  so  that  confidence  becomes 
impaired,  and  people  having  contracts  en- 
titling them  to  future  or  immediate  de- 
livery of  money  insist  that  these  contracts 
shall  be  executed  in  money  instead  of 
other  forms  of  promises,  what  happens  ? 
The  banks  call  in  loans  and  begin  to 
husband  their  cash.  If  they  hold  large 
quantities  of  securities  salable  on  the 
London  or  Paris  or  Berlin  market,  a  cable 
order  will  effect  the  sale  of  these  in  an 
hour,  and  the  gold  proceeds  will  be  on 
their  way  across  the  Atlantic  within  a 
day. 

Wonderful  has  been  the  effect  within 
the  last  twenty-five  years  of  this  steadying 
influence  of  the  stock  market  upon  the 
demand  for  money  and  upon  the  smooth- 
ness of  the  operations  of  the  mechanism 
of  the  exchanges.  What  has  just  been 
put  in  a  crude  form  by  referring  to  a  crisis 
occurs  daily  and  hourly  on  the  stock  ex- 
changes, and  prevents  sudden  contraction 


io6    Wall  Street  and  the  Country 

and  expansion  in  the  rate  for  loans.  The 
manufacturer  goes  placidly  on  paying  his 
four  or  five  per  cent  for  commercial  loans, 
when  if  there  were  no  stock  exchanges 
where  securities  could  be  sold  in  one 
market  at  a  slight  profit  over  another  he 
would  find  that  his  bank  was  first  charging 
seven  or  eight  per  cent,  then  dropping  to 
three  or  four,  and  then  going  back  to 
eight.  By  means  of  the  facility  which  the 
stock  market  affords  for  placing  credit  in- 
stantly at  the  command  of  one  market  or 
another  the  pressure  for  money  is  miti- 
gated, and  has  but  a  limited  effect  upon 
the  commercial  borrower.  Such  pressure 
as  now  occurs  is  transferred  to  the  bor- 
rower on  call, — the  broker  in  stocks,  who 
thus  acts  as  insurer  for  the  commercial 
borrower.  This  influence  of  the  stock 
market  has  much  the  effect  of  a  buffer 
upon  the  impact  of  two  solid  bodies. 
Crises  are  prevented  when  they  can  be 
prevented,  and  when  they  cannot  they 
are  anticipated,  and  their  force  is  broken 
into  a  mild  succession  of  ripples  instead 
of  a  tidal  wave. 


Functikn^ot"thif  Exchanges    107 

^W  r  > . 


Securities  form  one  of  the  greatest  and 
most  important  parts  of  the  modern  mech- 
anism of  exchange.  They  are,  in  many 
cases,  as  good  as  money,  and  in  some 
cases  are  better  than  money.  If  a  large 
shipment  of  money  has  to  be  made  from 
New  York  to  London,  it  is  much  more 
economical  to  ship  securities  of  the  same 
amount  than  to  ship  kegs  of  gold.  Credit 
is  forwarded  by  cable  and  the  securities 
follow  by  mail.  All  markets  are  thus 
brought  into  touch  with  one  another,  and 
respond  to  a  fluctuation  of  a  fraction  of 
one  per  cent,  but  without  the  confusion 
and  crash  which  would  ensue  if  every 
sudden  pressure  for  money  was  felt  upon 
a  market  naked  of  such  securities. 

Japan  passed  through  a  severe  crisis  in 
1901,  and  part  of  the  year  before,  because 
of  the  barrenness  of  her  stock  market. 
She  had  been  engaged  in  great  enter- 
prises, but  the  stimulus  given  her  industrial 
interests  did  not  prove  immediately  prof- 
itable. Her  people  had  begun  import- 
ing great  quantities  of  foreign  goods, 
including  too  many  luxuries,  and  the  result 


io8    Wall  Street  and  the  Country 

was  that  she  had  large  debts  to  pay 
abroad.  If  she  had  had  a  good  security 
market  these  debts  would  have  been 
settled  by  the  transfer  of  securities ;  but 
having  only  a  few  securities,  and  those  of 
doubtful  value,  to  throw  upon  the  London 
market,  she  was  compelled  to  settle  at  a 
sacrifice  the  demands  upon  her  for  money. 
She  was  compelled  to  sell  goods  for  any 
price  that  could  be  obtained.  A  check 
was  put  upon  foreign  importations,  indus- 
try was  brought  suddenly  to  a  halt,  and 
famine  stared  her  in  the  face.  This  influ- 
ence of  the  market  for  securities  upon 
prices  is  one  of  its  most  important  bene- 
fits. If  Japan  in  this  case,  instead  of  un- 
loading her  goods  so  suddenly  and  at  such 
sacrifices,  could  have  made  the  descent 
gradually,  she  would  have  been  able  to 
sell  by  degrees  and  at  higher  prices  than 
those  actually  realized,  and  so  would  have 
been  saved  the  economic  loss  which  fol- 
lows from  the  sacrifice  of  commodities 
under  the  pressure  of  necessity. 

France  was  saved  from  one  of  the  great- 
est crises  of  history  by  the  large  holdings 


Functions  of  the  Exchanges    109 

of  securities  among  her  people  during  the 
Franco-Prussian  War.  When  Germany 
demanded  an  indemnity  of  five  thousand 
millions  of  francs  ($1,000,000,000),  it  was 
in  the  belief  that  its  payment  would  throw 
a  paralysis  upon  French  industry  and  en- 
terprise which  would  prostrate  them  for  a 
generation.  But  what  happened  ?  When 
the  French  Government  appealed  to  the 
people,  saying,  "  We  need  five  thousand 
millions  of  francs  to  pay  off  this  indebted- 
ness," the  whole  matter  was  adjusted 
through  the  securities  market,  and  in  a 
few  years  the  Bank  of  France  resumed 
the  payment  of  gold  for  its  notes.  French- 
men subscribed  liberally  for  the  securities 
of  the  new  loans  to  pay  off  Germany,  and 
in  order  to  obtain  the  necessary  funds  they 
directed  their  brokers  to  sell  in  London, 
Berlin,  Vienna,  Brussels,  and  New  York 
the  old  securities  which  they  held. 

Five  thousand  million  francs  were  thus 
taken  from  the  capital  of  France,  but  she 
was  so  rich  that  she  was  able  to  submit  to 
it  without  disaster.  She  was  rich  because 
she  had  piled  up  these  securities,  with 


no    Wall  Street  and  the  Country 

which  she  was  able  to  part  without  suffer- 
ing. The  crushing  debt  imposed  by  the 
conqueror  was  practically  cancelled  by 
transferring  to  other  markets  the  titles  of 
the  debts  which  Frenchmen  held  against 
foreign  peoples.  No  such  operation  would 
have  been  possible  before  the  organization 
of  the  modern  securities  market,  respon- 
sive as  it  is  to  the  slightest  change  in  sup- 
ply or  demand,  the  slightest  rumor  of  war 
or  peace. 

France,  by  the  possession  of  a  flexible 
stock  exchange  and  a  great  mass  of  the 
securities  negotiable  upon  such  exchanges, 
was  saved  from  the  convulsion  which  must 
have  prostrated  her  entire  industrial  sys- 
tem if  it  had  been  necessary  for  her  to 
find  money  to  discharge  the  demands  of 
the  conqueror.  Similar  great  transactions 
are  constantly  carried  on  by  our  kings  of 
finance  without  any  such  disturbance  to 
the  money  market  as  would  occur  if  this 
resource  were  not  available.  If  a  hundred 
millions  of  dollars  are  needed  to  consum- 
mate a  great  transfer,  or  for  a  public  loan, 
the  money  comes  promptly  to  hand  by 


Functions  of  the  Exchanges    1 1 1 

the  sale  of  those  securities,  or  else  by  sim- 
ply borrowing  on  them  in  foreign  markets 
where  the  securities  are  put  up  as  guaran- 
tee for  ultimate  payment.  Through  all 
the  processes  of  modern  industrial  life  the 
existence  of  the  securities  market  acts  as 
a  buffer,  as  a  guarantee  to  the  business 
community  that  in  times  of  emergency 
and  crisis  the  shock  shall  not  be  too  sud- 
den, that  nothing  determining  the  value 
of  great  industries  shall  be  done  in  a  cor- 
ner, and  that  the  market  shall  be  kept  as 
nearly  level  as  actual  conditions  will  per- 
mit it  to  be  kept. 

Some  of  those  who  admit  the  value  of 
the  stock  market  have  subjected  to  severe 
criticism  those  who  speculate  for  the  fall 
of  stocks.  One  reads  constantly  of  the 
11  bears"  trying  to  accomplish  such  and 
such  results  by  depressing  securities.  Na- 
poleon had  a  long  talk  with  Mollien,  his 
Minister  of  Finance,  in  seeking  to  demon- 
strate that  those  who  sold  "short,"  in  the 
belief  that  national  securities  would  fall, 
were  traitors  to  their  country.  He  argued 
that  if  these  men  were  selling  national 


ii2    Wall  Street  and  the  Country 

securities  for  future  delivery  at  less  than 
their  present  value,  they  were  guilty  of 
treason  to  the  State.  But  Mollien  replied 
in  substance :  "  These  men  are  not  the 
ones  who  determine  the  price ;  they  are 
only  expressing  their  judgment  upon  what 
it  will  be.  If  they  are  wrong^if  the  credit 
of  our  State  is  to  be  maintained  in  the  fu- 
ture at  its  former  high  standard/ in  spite 
of  your  military  preparationsjthese  men 
will  suffer  the  penalty  by  having  to  make 
delivery  at  the  price  for  which  they  sold, 
for  they  must  go  into  the  market  and  buy 
at  the  price  then  prevailing.  It  is  their 
judgment,  not  their  wish,  that  they  express." 
The  short  seller — the  "bear"  of  the 
money  market — is  often  one  of  its  great- 
est benefactors.  He  calls  a  halt  on  reck- 
less speculation,  and  his  acts,  tending  to 
depress  prices,  produce  their  natural  re- 
sult of  repressing  extravagant  inflation  of 
values,  if  his  judgment  is  sustained  by  facts 
and  by  the  judgment  of  other  men.  If  it 
is  simply  a  mistaken  individual  judgment, 
he  pays  for  his  error  in  cash  to  some  one 
with  a  more  hopeful  and  saner  judgment. 


Functions  of  the  Exchanges    113 

The  organized  stock  and  produce  mar- 
kets constitute,  therefore,  not  only  a  vital 
factor  in  modern  exchange,  but  so  far 
from  being  a  necessary  evil,  as  some  ethi- 
cal writers  claim,  they  constitute  one  of 
the  most  beneficial  instruments  of  modern 
civilization.  Without  them  modern  busi- 
ness could  not  be  conducted,  or  would  be 
conducted  only  with  a  series  of  shocks, 
upheavals,  and  convulsions  which  would 
result  in  robbing  the  manufacturer  and 
consumer  for  the  benefit  of  the  shrewdest 
speculators  in  actual  commodities. 

There  is  another  important  considera- 
tion in  this  influence  of  the  stock  market 
upon  modern  society,  which  will  perhaps 
gather  up  and  bring  into  a  clearer  light 
some  of  the  other  points  which  have  been 
made.  The  stock  market,  by  bringing 
all  values  to  a  level  in  a  common  and 
public  market,  determines  the  direction 
of  production  in  the  only  way  in  which  it 
can  be  safely  determined  under  the  modern 
industrial  system  of  the  division  of  labor 
and  production  in  anticipation  of  demand. 
It  does  so  by  offering  the  highest  price 


ii4    Wall  Street  and  the  Country 

for  money  and  for  the  earnings  of  money 
at  the  point  where  they  are  most  needed. 
A  market  denuded  of  capital  will  pay  a 
high  price  for  capital.  It  is  only  through 
the  mechanism  of  the  money  market  and 
the  stock  exchange  together  that  any  real 
clue  is  afforded  of  the  need  for  capital, 
either  territorially  or  in  different  indus- 
tries. Through  the  influences  which  the 
rates  for  money  and  capital  exert  upon 
investment  in  new  industries,  through  the 
fact  that  capital  is  attracted  to  securities 
which  are  selling  high  because  the  indus- 
tries they  represent  are  earning  well,  there 
results  a  closer  adjustment  of  production 
to  consumption,  of  the  world's  work  to 
the  world's  need,  than  would  be  possible 
under  any  other  system. 

From  this  point  of  view,  the  mechanism 
of  modern  industry  affords  an  almost  in- 
superable objection  to  State  socialism.  If 
it  were  attempted  to  establish  any  system 
of  State  socialism,  it  would  have  to  be  de- 
termined in  just  what  proportion  every 
article  should  be  produced, — just  how 
many  shoes  and  hats,  how  much  clothing 


Functions  of  the  Exchanges    115 

and  sugar  and  vinegar  the  world  needed, 
and  it  would  be  necessary  to  adjust  the 
supply  to  that  need.  To-day  through  the 
mechanism  of  the  stock  market  it  is  deter- 
mined, as  precisely  as  human  ingenuity 
has  yet  found  it  possible,  just  how  much 
is  needed  of  every  commodity,  because 
the  products  of  those  industries  which  are 
needed  are  rising  in  value,  tempting  to  in- 
creased production,  and  those  which  are 
not  needed  are  falling,  giving  warning 
that  production  should  be  curtailed. 

If  the  stock  market  were  abolished  and 
State  socialism  set  up,  who  would  be  the 
judges  of  the  direction  of  production  ? 
Who  would  determine  whether  there 
should  be  a  million  more  pairs  of  shoes 
produced  or  only  ten  thousand  ?  Who 
would  determine  whether  human  energy 
should  be  wasted  in  producing  shoes  no- 
body could  use,  or  utilized  in  building 
railways  where  they  were  badly  needed  ? 

The  guiding  factor  of  rising  and  falling 
prices  having  been  eliminated,  there  would 
be  no  means  of  determining  promptly 
when  the  supply  of  any  article  had  reached 


n6    Wall  Street  and  the  Country 

the  limit  of  the  world's  need.  An  execu- 
tive board  of  one  hundred  of  the  ablest 
men  in  the  world  could  not  possibly  de- 
termine the  direction  which  production 
should  take  without  the  index  afforded  by 
prices  in  the  merchandise  and  stock  mar- 
kets. But  through  the  stock  market  it  is 
determined  almost  automatically,  with  as 
much  nicety  as  anything  can  be  deter- 
mined which  depends  upon  human  judg- 
ment, where  further  production  is  needed 
and  where  capital  is  needed.  Upon  that 
market  is  concentrated,  in  a  sense,  the 
judgment  of  every  human  being  in  the 
world  having  any  interest  in  production 
either  as  consumer  or  producer, — not  only 
of  those  who  deal  in  stocks  and  securities, 
but  those  also  who  are  directly  concerned 
in  the  industries  and  interests  which  those 
securities  represent.  That  delicate  regis- 
ter of  values,  that  sensitive  governor  of 
production,  that  accurate  barometer  of 
the  people's  needs,  could  not  be  replaced 
by  any  process  that  any  State  socialist  has 
devised  or  suggested. 


IV 


THE    ECONOMIC    PROGRESS   OF   THE    NINE- 
TEENTH   CENTURY 

A  MORE  striking  growth  in  wealth  and  in 
the  material  comforts  of  civilization  was 
witnessed  by  the  nineteenth  century  than 
by  any  preceding  century  in  the  history  of 
the  world.  This  statement  can  be  made 
without  qualification,  because  of  the  new 
power  brought  to  the  aid  of  the  human 
hand  by  machine  production.  The  appli- 
cation of  steam  power  and  electricity  to 
manufacturing  and  transportation  has  revo- 
lutionized the  organization  of  industry, 
brought  together  distant  parts  of  the 
world,  and  so  increased  the  producing 
power  of  the  individual  arm,  that  the  food 
supply,  clothing,  and  shelter  required  by 
the  community  are  now  produced  by  a 
small  portion  of  its  members,  and  a  larger 
proportion  than  ever  before  are  released 
117 


n8    Wall  Street  and  the  Country 

from  these  employments  for  the  higher 
ones  of  luxury,  literature,  art,  and  ministry 
to  the  finest  tastes. 

The  changes  in  methods  of  business,  in 
wealth,  and  in  the  general  economic  con- 
ditions, which  have  been  thus  brought 
about,  are  revealed  chiefly  through  the 
creation  of  mills  and  factories,  through 
the  increase  in  their  output,  through  the 
enlarged  equipment  for  carrying  this  out- 
put by  rail  and  steamship  to  all  parts  of 
the  world,  and  through  the  great  volume 
of  commerce,  banking  credits,  and  saved 
capital  among  every  civilized  people. 
These  changes  in  methods  of  production 
and  exchange  have  caused  not  merely 
changes  in  the  volume  of  things  produced 
and  in  the  rapidity  of  their  exchange,  but 
have  tended  by  nearly  wiping  out  the  costs 
of  transportation,  to  reduce  competition  in 
the  staple  articles  of  agriculture  and  manu- 
facture to  the  character  of  competition  in 
a  single  world  market,  where  prices  and 
conditions  affecting  supply  and  demand 
are  brought  to  a  focus  by  the  quotations 
flashed  around  the  world  in  an  instant  by 


Recent  Economic  Progress    119 

the  telegraph,    the    telephone,   and    the 
ocean  cable. 

The  world  is  now  many  times  richer  in 
the  aggregate  than  it  was  at  the  beginning 
of  the  nineteenth  century,  and  many  times 
richer  in  the  average  wealth  of  the  indi- 
vidual. Population  has  increased  with 
rapid  strides,  and  to  an  extent  which 
would  not  have  been  possible  under  the 
old  conditions  of  food  production  and 
transportation.  The  people  of  the  world 
are  no  longer  shut  off  in  isolated  commu- 
nities, which  are  compelled  to  raise  their 
own  food  and  to  make  their  own  clothing, 
and  which  suffer  famine  and  nakedness  if 
their  local  supplies  fail.  Each  civilized 
people,  in  time  of  peace,  can  now  count 
upon  the  resources  of  all  other  peoples  in 
supplying  its  needs,  with  no  greater  dis- 
turbance in  case  of  crop  failure  or  emerg- 
ency than  the  fluctuations  in  the  prices  of 
securities  on  the  stock  market  or  the 
transfer  of  gold  and  credits  between  great 
banking  houses. 

Populations  have  sprung  up  in  Great 
Britain,  Belgium,  and  the  large  cities  of 


120    Wall  Street  and  the  Country 

other  countries,  which  draw  their  food  sup- 
plies from  other  lands  and  over  seas.  They 
never  expect  under  the  most  favorable 
circumstances  to  obtain  these  supplies  en- 
tirely at  home,  because  they  have  found 
that  under  modern  conditions  they  can, 
by  concentrating  their  skill  and  energy  on 
certain  manufactures,  more  profitably  ex- 
change for  the  food  and  raw  materials  of 
the  less  advanced  countries  the  finished 
products  of  their  mills  and  workshops. 
All  this  became  possible  upon  a  large 
scale  only  within  the  latter  half  of 
the  nineteenth  century.  The  population 
of  the  European  countries  more  than 
doubled  within  the  century,  and  by  the  un- 
equal distribution  of  this  increase  shifted 
the  balance  of  political  power.  This 
growth  of  Europe  in  population  is  shown 
in  the  table  on  page  121. 

These  figures  illustrate  the  compara- 
tively small  population  which  fought  out 
the  Napoleonic  wars,  and  the  differences  in 
political  power  and  prestige  which  have 
come  with  changes  in  the  numbers  of  the 
people.  France  in  1800  was  the  chief 


Recent  Economic  Progress    121 


EUROPEAN    POPULATIONS   IN    THE    NINETEENTH 
CENTURY 


Beginning. 

End. 

Per  cent 
increase. 

United  Kingdom 
France  

15,668,993 

27   34Q  OO3 

40,500,000 

30  OOO  OOO 

159 

46 

Germany  

22  OOO  OOO 

C.3  OOO.  OOO 

I4"> 

Russia  in  Europe 
Austria-Hungary 
Italy  ,  

40,170,000 
l8,OOO,OOO 
I7,38O,OOO 

110,000,000 

43,700,000 

34,000,000 

174 
143 
05 

Spain  

IO  3C  I.  OOO 

19  ooo  ooo 

83.  c 

Portugal  

3  630  ooo 

C..C.OQ  ooo 

C2 

Belgium  

3.780,000 

6  67^,000 

76 

Holland  

2,760.000 

C..IOO.OOO 

84 

Sweden   ... 

2   I  CO  OOO 

5  ooo  ooo 

131 

Norway  

884.  ooo 

2   150  OOO 

*p* 

143 

Denmark  

926,000 

2.3CO  ooo 

IC.4 

Switzerland  

2.302,740 

3.  1  CO.  OOO 

32 

167,450,736 

370,025,000 

126 

power  in  Europe.  Her  population  was 
surpassed  but  little  by  that  of  Austria 
and  Great  Britain  combined.  How  recent 
changes  in  population  have  gone  hand  in 
hand  with  the  shifting  of  the  axis  of  polit- 
ical power  is  thus  described  by  the  emi- 
nent English  statistician,  Mr.  Robert 
Giffen ' : 

1  Economic  Inquiries  and  Studies,  ii.,  p.  12. 


122    Wall  Street  and  the  Country 

"  These  facts  correspond  very  closely  with  the 
transfer  of  military  preponderance  on  the  conti- 
nent from  France  to  Germany,  and  with  the  in- 
creasing prominence  of  Russia,  which  would  prob- 
ably be  much  more  felt  but  for  the  simultaneous 
growth  of  Germany.  They  also  explain  why  it  is 
that  the  United  Kingdom,  with  an  economic  and 
social  development  resembling  that  of  France,  in 
many  respects,  has  fallen  less  behind  in  the  politi- 
cal race;  why  its  relative  position  among  European 
powers,  though  not  what  it  was  fifty  years  ago,  is 
less  weakened  than  that  of  France  has  been.  Fifty 
years  ago  it  was  the  leader  among  powers'  which 
were  occupied  in  restraining  France,  singly  a  greater 
power  than  any.  Now  it  is  about  equal  in  numbers 
to  France,  although  its  whole  position  is  changed 
by  the  fact  that  no  power,  not  even  Germany,  pre- 
ponderates to  the  same  extent  as  France  once  did." 

How  the  means  have  been  found  for 
maintaining  these  great  populations  in 
comfort, — and  even  in  luxury,  when  con- 
trasted with  the  meagre  conditions  of  a 
century  or  two  ago, — is  the  story  of  ma- 
chine production  through  the  use  of 
steam  and  of  the  myriad  of  inventions 
that  have  followed  in  its  wake.  The  in- 
crease in  the  volume  of  commerce  has 
been  the  striking  visible  proof  of  the  in- 


Recent  Economic  Progress    123 


creased  producing  and  consuming  power 
of  the  world.  The  entire  population  of 
the  earth  in  1800  was  estimated  by  care- 
ful students  at  640,000,000  souls.  The 
combined  foreign  commerce  of  all  coun- 
tries was  estimated  at  $1,479,000,000, 
or  $2.31  per  capita.  The  population  in- 
creased about  two-thirds  up  to  1860,  and 
commerce  had  risen  only  to  $4,049,000,000, 
or  less  than  three  times  the  amount  at  the 
beginning  of  the  century.  The  second 
half  of  the  century  witnessed  an  increase 
of  less  than  half  in  the  population  of  the 
world,  but  an  increase  in  the  volume  of 
commerce  nearly  five-fold,  and  an  increase 
in  its  amount  per  capita  from  $3.76  to 
$14.50.  These  comparisons  are  forcibly 
set  forth  by  the  following  table : 


Year. 

Population. 

Aggregate 
commerce. 

Commerce 
per  capita. 

1800.. 
1850.. 
1870.. 
1900  .  . 

640,000,000 
1,075,000,000 
1,310,000,000 
1,508,659,000 

$  1,479,000,000 
4,049,000,000 
10,663,000,000 
21,883,000,000 

$  2.31 
3.76 
8.14 
14.50 

These  figures  show  that  the  most  rapid 


124    Wall  Street  and  the  Country 

upward  movement  in  the  volume  of  com- 
merce occurred  after  1850  and  even  after 
1870.  The  earlier  years  of  the  century 
were  largely  employed  in  perfecting  the 
new  inventions  and  in  supplying  the  man- 
ufacturing nations  with  the  full  equipment 
for  meeting  the  new  demands.  The  most 
important  elements  of  this  new  equipment 
were  the  practical  application  of  steam 
power  to  manufacturing,  a  network  of 
railways  and  a  fleet  of  ocean  steamers, 
sufficient  to  link  together  the  world's  chief 
markets ;  a  sufficient  fund  of  saved  capital 
for  creating  these  new  engines  of  produc- 
tion and  exchange  without  trenching  upon 
the  ordinary  resources  of  civilized  commu- 
nities ;  an  organization  of  credit  that  would 
give  this  saved  capital  a  transferable  and 
loanable  form  ;  and,  finally,  a  freedom  for 
the  transfer  of  goods  and  capital  between 
nations  which  would  permit  both  to  com- 
pete freely  in  the  world's  markets. 

The  development  of  these  various  fac- 
tors of  modern  economic  life  has  pro- 
ceeded gradually  along  similar  but  not 
exactly  parallel  lines.  The  capital  neces- 


Recent  Economic  Progress    125 

sary  for  the  new  machinery  was  scanty  in 
the  early  years  of  the  century,  and  when 
railroad  building  began  on  a  large  scale, 
a  severe  strain  was  put  upon  the  resources 
of  even  the  richest  nations.  But  every 
successful  enterprise  that  permitted  a 
larger  net  product  from  the  labor  of  a 
given  number  of  hands,  increased  the  ca- 
pacity for  saving  and  the  capital  available 
for  creating  new  instruments  of  produc- 
tion. Undue  absorption  of  capital  in  a 
given  direction  caused  temporary  periods 
of  overproduction,  glutted  markets,  and 
stagnant  trade  ;  but  every  new  crisis  of 
this  sort  was  followed  by  a  new  outburst 
of  industrial  activity  and  by  a  more  rapid 
production  of  wealth  than  any  which  had 
gone  before.  The  character  of  these 
great  forces  operating  upon  the  develop- 
ment of  the  nineteenth  century,  and  some 
of  the  results  that  they  have  produced,  it 
is  the  purpose  of  this  chapter  to  set 
forth. 

One  of  the  most  efficient  weapons  of 
the  new  era  was  the  power  of  steam. 
Steam  first  became  a  serious  factor  in  pro- 


i26    Wall  Street  and  the  Country 

duction  near  the  middle  of  the  nineteenth 
century,  but  in  1850  it  still  amounted  to 
less  than  four  million  effective  horse-power. 
This  capacity  was  multiplied  more  than 
fourteen  times  within  the  half  century 
that  followed.  Europe  increased  her 
equipment  from  2,240,000  effective  horse- 
power in  1850  to  36,645,000  in  1895  ;  the 
United  States,  from  1,680,000  to  16,940,- 
ooo  ;  and  the  English  colonies  from  70,- 
ooo  to  1,995,000,  with  the  result  of 
swelling  the  total  for  the  world  from 
3,990,000  horse-power  in  1850  to  55,- 
580,000  horse-power  in  1895.  In  France, 
where  these  figures  are  carefully  kept, 
the  returns  for  1896  showed  the  existence 
of  67,347  stationary  machines  engaged 
in  industry  alone,  with  the  combined 
horse-power  of  1,262,688.  In  1902  the 
horse-power  thus  employed  had  risen  to 
1,998,989,  and  that  of  locomotives  to 
6,556,923.  The  increased  power  attained 
by  the  human  race  through  this  new 
engine  of  production  was  set  forth  for 
the  United  States  as  long  ago  as  1886, 
in  the  following  extract  from  a  report  by 


Recent  Economic  Progress    127 

Hon.  Carroll  D.   Wright,  United  States 
Commissioner  of  Labor : 

"  The  mechanical  industries  of  the  United  States 
are  carried  on  by  steam  and  water  power  repre- 
senting, in  round  numbers,  3,500,000  horse  power, 
each  horse  power  equaling  the  muscular  labor  of 
six  men;  that  is  to  say,  if  men  were  employed  to 
furnish  the  power  to  carry  on  the  industries  of 
this  country,  it  would  require  21,000,000  men, 
and  21,000,000  men  represent  a  population,  ac- 
cording to  the  ratio  of  the  census  of  1880,  of 
105,000,000.  The  industries  are  now  carried  on 
by  4,000,000  persons,  in  round  numbers,  repre- 
senting a  population  of  20,000,000  only.  There 
are  in  the  United  States  28,600  locomotives.  To 
do  the  work  of  these  locomotives  upon  the  exist- 
ing common  roads  of  the  country,  and  the  equiva- 
lent of  that  which  has  been  done  upon  the  railroads 
the  past  year,  would  require,  in  round  numbers, 
54,000,000  horses  and  13,500,000  men.  The  work 
is  now  done,  so  far  as  men  are  concerned,  by 
250,000,  representing  a  population  of  1,250,000, 
while  the  population  required  for  the  number  of 
men  necessary  to  do  the  work  with  horses  would 
be  67,500,000.  To  do  the  work,  then,  now  ac- 
complished by  power,  and  power  machinery,  in 
our  mechanical  industries  and  upon  our  railroads, 
would  require  men  representing  a  population  of 
172,500,000,  in  addition  to  the  present  population 
of  the  country  of  55,000,000,  or  a  total  population, 


128    Wall  Street  and  the  Country 

with  hand  processes  and  with  horse  power,  of 
227,500,000,  which  population  would  be  obliged 
to  subsist  on  present  means.  In  an  economic  view, 
the  cost  to  the  country  would  be  enormous.  The 
present  cost  of  operating  the  railroads  of  the 
country  with  steam  power  is,  in  round  numbers, 
$502,600,000  per  annum;  but  to  carry  on  the  same 
amount  of  work  with  men  and  horses  would  cost 
the  country  $11,308,500,000." 

The  application  of  the  power  of  steam 
to  transportation  has  been  a  necessary 
complement  of  its  application  to  produc- 
tion. Manufacturing  upon  a  large  scale 
for  a  wide  market  would  have  been  com- 
paratively useless,  especially  for  bulky 
articles,  if  the  means  had  not  been  created 
for  carrying  manufactured  products  at 
low  rates  to  the  uttermost  parts  of  the 
earth.  The  influence  of  railway  con- 
struction has  gone  far  beyond  the  mere 
cheapening  of  transportation  and  the 
increase  in  productive  power.  It  has 
worked  a  change  in  social  relations  among 
producing  nations  because  it  has  broken 
down  the  barriers  between  markets. 

It  is  this  fact, —  the  bringing  of  the 
producers  at  widely  separated  points  into 


Recent  Economic  Progress    129 

competition  with  each  other  in  common 
markets, —  that  has  had  much  to  do  with 
increasing  the  severity  of  this  competi- 
tion and  with  causing  the  creation  of 
trust  combinations  for  dividing  and  con- 
trolling markets.  There  was  a  time 
when  the  individual  manufacturer  had  a 
practical  monopoly  of  the  market  within 
a  certain  distance  from  his  mill,  or  at 
least  had  no  other  competitors  than  those 
of  his  own  locality.  The  village  cobbler, 
the  local  tailor,  or  the  weaver,  in  an  Eng- 
lish country  town,  ran  but  small  risk  of 
competition  from  London  or  from  the 
other  great  towns,  because  of  the  time 
required  to  reach  them  and  the  cost  and 
delay  of  shipping  goods. 

The  change  which  has  brought  markets 
nearer  together  has  come  about  by  de- 
grees. The  charges  for  railway  carriage 
have  been  reduced,  from  decade  to  decade, 
with  the  improvement  in  railway  construc- 
tion, through  economy  in  the  use  of  fuel, 
derived  from  improvement  in  machinery, 
and  through  the  gradual  cheapening  of 
most  of  the  materials  of  construction.  A 


130    Wall  Street  and  the  Country 

recent  article  in  the  London  Contempo- 
rary Review  estimated  the  combined 
carrying  power  of  ships  and  railroads  at 
26,440,000  tons  in  1860,  and  83,340,000 
tons  in  1892.  It  was  calculated  that  in 
the  year  1850  the  cost  of  land  carriage  for 
goods  in  Europe  was  about  $10  a  ton, 
for  one  hundred  kilometres  (sixty-two 
miles),  amounting  to  about  sixteen  cents 
a  mile.  The  reduction  in  these  charges 
in  recent  years  was  set  forth  in  a  'forcible 
manner  by  Professor  Henry  T.  Newcomb, 
in  a  report  to  the  Department  of  Agri- 
culture in  1898,  in  which  he  showed  that 
the  average  revenue  from  freight,  per  ton 
per  mile,  on  the  railways  of  the  United 
States,  fell  from  1.613  cents  in  1873  to 
0.806  cent  in  1896, — a  fall  of  one-half  the 
original  rate  within  less  than  a  generation. 
It  has  since  fallen  to  0.76  cent. 

These  reductions  in  the  cost  of  trans- 
portation have  resulted  in  a  greatly  in- 
creased volume  of  commerce.  The  freight 
traffic  on  the  railways  of  the  world  is  esti- 
mated to  have  trebled  between  1870  and 
1892,  rising  from  562,000,000  tons  in  the 


Recent  Economic  Progress    13 l 

former  year  to  1,746,000,000  tons  in  the 
latter  year.  Europe  absorbed  902,000,000 
tons  of  the  later  traffic,  the  United  States 
749,000,000  tons,  and  other  countries 
95,000,000  tons.  The  estimated  railway 
equipment  of  the  world  in  1896  was  about 
445,000  miles  (715,000  kilometres),  repre- 
senting a  cost  of  nearly  thirty-three  thou- 
sand millions  of  dollars  (170,000,000,000 
francs).1  How  recent  has  been  this  rail- 
way development  is  indicated  by  the  fact 
that  more  than  half  of  the  present  railway 
mileage  of  the  United  States  has  been 
constructed  since  1880.  The  mileage  of 
1870  was  only  40,160,  which  rose  in  1880 
to  87,724  miles.  The  next  ten  years 
brought  up  the  construction  to  163,597 
miles,  since  when  construction  has  been 
less  rapid,  because  the  great  centres  of 
trade  and  production  had  been  connected 
with  each  other  and  equipped  with  railway 
construction.  The  mileage  of  1900  was 
about  190,000  and  that  of  1902  about 
203,000.  In  France  the  length  of  rail- 

1  Dictionnaire  du  Commerce,  de  V Industrie  et  de  la  Banque, 
i.,  p.  829. 


132    Wall  Street  and  the  Country 

ways  in  operation,  exclusive  of  private 
lines  and  tramways,  rose  from  17,221  kilo- 
metres in  1872  to  38,166  kilometres  in 
1900.  In  the  German  Empire,  where 
there  were  11,729  miles  in  1870,  there 
were  30,562  miles  in  1900.  In  Russia, 
within  the  short  period  from  1887  to  1900 
the  mileage  of  the  State  railways  alone, 
not  including  the  private  lines,  rose  from 
2928  to  20,346  miles.  Italy  increased  her 
mileage  from  3825  miles  in  1870  to  9821 
miles  in  1899. 

In  the  whole  of  Europe,  according  to 
the  editor  of  FEcoHomiste  Europten,  the 
aggregate  railway  equipment  in  operation 
increased  from  134,591  kilometres,  on 
January  i,  1875,  to  269,743  kilometres 
(165,000  miles),  on  December  31,  1898. 
A  still  further  increase  is  computed  by 
M.  Leroy-Beaulieu  to  296,051  kilometres 
(183,000  miles)  at  the  close  of  1902.  The 
latest  figures  of  railway  construction  out- 
side Europe  and  the  United  States  indi- 
cate a  total  of  about  93,000  miles,  where 
in  1850  scarcely  a  mile  of  road  existed, 
and  where  even  in  1870  there  were  less 


Recent  Economic  Progress    133 

than  12,000  miles.  In  Egypt,  where  rail- 
ways were  unknown  in  the  middle  of  the 
century,  the  screech  of  the  locomotive  may 
now  be  heard  along  1389  miles  of  line. 
In  the  Argentine  Republic,  where  58 
miles  of  road  existed  in  1860,  there  were 
10,412  in  1900.  In  Japan,  which  was 
practically  without  railways  twenty  years 
ago,  there  are  now  3699  miles  of  line  ; 
and  in  Mexico,  which  had  215  miles  in 
1870,  9800  miles  of  road  link  the  inte- 
rior with  the  seacoast  and  the  American 
frontier. 

It  is  not  surprising  that  by  this  new 
equipment  with  the  means  of  transporta- 
tion the  world,  from  being  separated  into 
isolated  local  markets  has  become  a  single 
great  market,  in  which  the  staple  products 
of  industry  compete  with  each  other  upon 
nearly  equal  terms,  whether  originating  in 
the  mills  of  England,  the  pioneer  of  manu- 
factures, in  the  shops  and  homes  of  France 
and  Germany,  in  the  new  factories  of  the 
United  States,  with  their  modern  machin- 
ery, or  in  the  still  younger  establishments 
of  China  and  Japan.  It  was  estimated  in 


134    Wall  Street  and  the  Country 

a  recent  article  in  the  French  economic 
periodical,  the  J ' ournal  des  Economistes, 
that  since  1850  a  saving  in  the  transporta- 
tion of  commodities  has  been  effected  by 
means  of  railways,  amounting  to  12  per 
cent  of  their  price  ;  so  that  without  loss 
to  any  one,  and  without  regard  to  econo- 
mies in  production,  the  necessaries  of  life 
can  be  delivered  in  any  quarter  of  the 
world  reached  by  railway  traffic,  at  one- 
eighth  less  than  would  have  been  possible 
half  a  century  ago. 

The  production  and  useful  distribution 
of  the  great  staple  requisites  of  modern 
manufacturing,  coal  and  iron,  is  one  of  the 
results  which  has  become  possible  with 
the  extension  of  railway  traffic.  The  en- 
tire production  of  iron  in  the  world  at  the 
beginning  of  the  nineteenth  century  is 
reckoned  by  Mr.  James  M.  Swank  at 
825,000  long  tons,  and  in  1850  as  4, 750,000 
tons.  The  amount  rose  in  1880  to  17,- 
950,000  tons,  in  1890  to  27,157,000  tons, 
and  in  1899  to  39,410,000  tons,  of  which 
the  United  States  made  34.56  per  cent. 
The  production  of  steel  throughout  the 


Recent  Economic  Progress    135 

world  in   1878  was  3,021,000  long  tons. 
This  large  product  was  multiplied  by  800 
per  cent  within  twenty-one  years,  of  which 
the  United  States  made  10,639,857  tons, 
or   39.25    per  cent.     The  price  of   steel 
rails   per  ton   in  Pennsylvania  mills   was/ 
$158.50  in  1868  and   $67.50  in  1880,  butf 
fell  in    1890   to    $31.75    and    in    1903  to 
$28.00. 

The  efficiency  of  railways  and  steam- 
ships in  placing  at  the  command  of  civil- 
ized communities  food  supplies  and  other 
necessaries,  has  steadily  increased  since 
the  carrying  system  of  the  world  ap- 
proached completion.  Agricultural  pro- 
duction has  been  stimulated,  and  farming 
upon  a  large  scale  has  become  possible 
because  of  the  reduction  of  railway  charges. 
The  number  of  farms  in  the  United  States 
increased  215  per  cent  from  1850  to  1890, 
or  from  1,449,073  to  4,564,641,  and  their 
total  improved  acreage  increased  by  216.2 
per  cent,  or  from  113,032,614  acres  to 
357,616,755  acres.  From  1890  to  1900 
the  number  rose  to  5,737,372  and  the  im- 
proved acreage  to  4 1 4, 498, 48  7  acres.  The 


136    Wall  Street  and  the  Country 

exports  of  wheat  from  the  United  States, 
which  were  only  11,646,941  bushels,  in- 
cluding flour,  in  1866,  rose  to  186,321,514 
bushels  in  1880,  and  to  234,772,515  bushels 
in  1902.  The  average  price  on  the  farm, 
which  was  152.7  cents  in  1876,  fell  to  95.1 
in  1880  and  to  61.9  cents  in  1900. 

This  fall  in  price,  however,  due  partly 
to  improved  farming  machinery  and  im- 
plements, was  only  partly  borne  by  the 
farmer.  The  decline  in  the  cost  of  car- 
riage of  wheat  has  been  a  vital  element. 
The  freight  rate  per  bushel  from  Chicago 
to  New  York  was  15.95  cents  in  1867, 
and  one  bushel  in  every  5.77  bushels  was 
absorbed  by  the  cost  of  carriage.  The 
conditions  of  1880  showed  a  reduction  in 
the  price  of  carrying  to  12.27  cents,  so 
that  one  bushel  at  the  price  then  ruling 
paid  the  cost  of  carrying  10.19  bushels. 
The  conditions  of  1890  showed  that  freight 
rates  had  fallen  to  5.86  cents  per  bushel 
and  that  14.16  bushels  were  carried  for 
the  cost  of  one  bushel,  at  the  low  price  of 
83  cents  then  prevailing.  The  conditions 
of  1897  showed  a  further  fall  in  the  freight 


Recent  Economic  Progress    137 

rate  from  Chicago  to  New  York  to  4.35 
cents  per  bushel,  and  17.24  bushels  were 
carried  to  the  seaboard  for  the  price  of 
one,  even  when  that  price  had  fallen  to 
75  cents  per  bushel. 

Thus,  the  great  reduction  in  the  price 
of  farm  products  for  export  has  been  due 
in  large  measure  to  the  increased  efficiency 
of  transportation  by  rail,  and  the  fall  in 
price  on  the  other  side  of  the  ocean  has 
been  due  in  nearly  equal  degree  to  the 
increased  efficiency  of  transportation  by 
sea.  The  mass  of  consuming  laborers, 
therefore,  in  the  great  manufacturing 
countries  of  Europe,  have  profited  by 
their  ability  to  obtain  a  much  larger  sup- 
ply of  food  for  a  given  product  of  their 
own  labor  than  ever  before,  while  the 
farmer  has  submitted  to  only  a  part  of  the 
reduction  in  price.  What  has  been  set 
forth  in  regard  to  wheat  is  true  of  other 
staple  products.  Anthracite  coal,  which 
cost  $3.92  per  ton  at  Philadelphia  in  1869, 
was  then  carried  200  miles  for  the  price 
of  one  ton.  The  price  in  1880  was  $4.53, 
but  the  fall  in  freight  rates  made  it  pos- 


138    Wall  Street  and  the  Country 

sible  to  carry  a  ton  284  miles  for  an 
amount  equal  to  its  price.  Freight  rates 
fell  from  1.746  cents  per  ton  per  mile  in 
1869,  to  1.426  cents  per  ton  per  mile  in 
1880,  and  to  0.863  cent  per  ton  per  mile 
in  1890,  when  the  price  of  one  ton  repre- 
sented its  carriage  for  406  miles.  This 
distance  had  further  risen  in  1897,  at  a 
freight  rate  of  0.712  cent  per  ton  per 
mile  to  439  miles.  The  fall  in  freight 
rates  would  stand  out  still  more  conspicu- 
ously if  it  had  not  been  accompanied  by  a 
fall  in  the  price  of  coal  to  $3.50  per  ton  in 
1897,  which  diminished  by  more  than  one- 
fifth  the  sum  to  be  divided  by  the  average 
charge  per  ton  for  freight. 

The  great  equipment  of  machine  pro- 
duction and  carriage  with  which  the  world 
was  dowered  in  the  nineteenth  century 
called  for  great  amounts  of  capital,  for  the 
means  of  gathering  up  the  scattered  capi- 
tals of  individuals  into  common  funds, 
and  for  a  ready  and  efficient  means  of 
transferring  this  capital.  These  means 
were  found  in  the  organization  of  bank- 
ing credit,  foreign  exchange,  clearings, 


Recent  Economic  Progress    139 

and  stock  companies.  The  scanty  sup- 
plies of  metallic  money  available  in  the 
civilized  world  in  1800  would  have  been 
pitifully  inadequate  to  transact  the  great 
business  of  the  closing  decades  of  the  cen- 
tury. Even  the  increase  in  these  supplies, 
which  raised  the  average  gold  production 
of  the  world  from  $16,000,000  per  year 
for  the  first  half  of  the  century  to  $300,- 
000,000  in  its  closing  years,  would  have 
been  insufficient  to  carry  on  modern  busi- 
ness without  the  extension  of  the  mechan- 
ism of  credit.  This  mechanism,  in  the 
form  of  organized  banking  and  the  issue 
of  circulating  paper  money,  was  hardly 
known  outside  of  London  at  the  begin- 
ning of  the  nineteenth  century.  The  old 
specie  banks  had  been  destroyed,  the  Bank 
of  France  was  about  to  be  organized,  and 
the  limited  circulation  of  the  Bank  of 
Vienna  was  under  suspicion  because  of  the 
counterfeiting  of  its  notes  by  Napoleon. 

The  Bank  of  France  was  the  oldest  of 
the  central  banks  of  the  European  conti- 
nent, and  it  was  not  until  the  middle  of 
the  century  that  similar  institutions  spread 


140    Wall  Street  and  the  Country 

in  the  other  countries  of  Europe.  Belgium 
was  dowered  with  a  national  bank  in  1850  ; 
banks  sprang  up  in  Spain,  in  Italy,  in  the 
states  of  Switzerland,  and  all  over  Ger- 
many ;  but  it  was  not  until  1860  that  the 
Bank  of  Russia  was  put  upon  a  firm  basis, 
and  not  until  1875  that  the  Imperial 
Bank  of  Germany  succeeded  the  Bank  of 
Prussia  and  established  a  uniform  note 
circulation  for  the  new  German  Empire. 
The  money  supply  of  the  world,  estimated 
in  1800  at  $2,840,000,000,  had  risen  in  the 
beginning  of  1903  to  $11,980,000,000,  of 
which  $5,382,600,000  was  in  gold.  The 
gold  money  of  the  world  was  estimated 
for  the  leading  countries  at  only  $1,209,- 
800,000  in  1873  and  at  3,901,900,000  in 
1893.  The  total  stock  of  money  increased 
more  than  100  per  cent  within  the  gen- 
eration ending  with  1903,  and  the  gold 
basis  upon  which  it  rested  was  multiplied 
by  more  than  four  times. 

The  banking  power  of  the  leading  com- 
mercial countries  is  even  greater  than  is 
indicated  by  these  statistics  of  the  supply 
of  coin  and  paper  money.  The  European 


Recent  Economic  Progress    141 

banks  of  issue  increased  their  deposit  ac- 
counts from  2,314,000,000  francs  at  the 
close  of  1875  to  9,656,000,000  francs  ($i,- 
860,000,000)  at  the  close  of  1902,  while 
their  note  circulation  increased  from 
9,699,000,000  francs  to  16,215,000,000 
francs  ($3,130,000,000).  The  banks  of 
Great  Britain  alone  showed  deposits  in 
January,  1903,  of  about  ^870,000,000 
($4,230,000,000).  These  figures,  more- 
over, are  independent  of  the  colonial  banks 
with  London  offices,  and  of  the  banks  that 
are  nominally  foreign,  but  that  have  Lon- 
don offices  and  are  chiefly  owned  by  Eng- 
lishmen. These  classes  of  British  banks 
had  deposits  in  1903  amounting  to  about 
^250,000,000,  making  the  total  deposits 
in  British  banks,  scattered  over  Australia 
and  other  British  dependencies,  about 
^1,100,000,000  ($5,500,000,000). 

The  United  States  are  equally  large 
contributors  to  the  banking  resources  of 
the  world.  The  combined  deposits  of  all 
the  banks  of  the  United  States  were  given 
by  the  Comptroller  on  or  about  June  30, 
1903,  at  $10,203, 318,478,  and  the  combined 


H2     Wall  Street  and  the  Country 

banking  power,  including  capital  and  sur- 
plus, as  $13,310,405,650.  This  afforded 
an  average  banking  power  per  capita,  in 
the  United  States,  of  $166.90,  and  showed 
a  great  increase  within  a  few  years.  The 
banking  power  represented  by  correspond- 
ing figures  as  recently  as  1895  was  only 
$6,703,544.084,  or  $95.83  per  capita. 

The  banking  power  of  the  entire  world 
was  estimated  by  Mr.  Mulhall,  the  Eng- 
'  lish  statistician,  at  $1,540,000,000  in  1840, 
but  it  rose,  in  1890,  to  about  $16,000,000,- 
ooo.  The  increase  within  the  next  thirteen 
years,  according  to  an  estimate  by  the 
Comptroller  of  the  Currency  of  the  United 
States,  was  nearly  100  per  cent,  and  this 
carried  the  world's  credits  and  the  money 
upon  which  they  were  based,  to  $31,398,- 
000,000.  An  illustration  of  the  remark- 
able growth  in  the  employment  of  banking 
power  is  afforded  by  the  organization  and 
use  of  clearing  houses  in  the  leading  com- 
mercial countries.  In  the  United  States, 
the  clearings  reported  for  the  year  1903 
at  all  cities  having  clearing  houses,  were 
$114,068,837,569. 


Recent  Economic  Progress    143 


The  income  of  all  workers,  in  all  occu- 
pations in  the  United  States  in  1903,  was 
probably  about  $10,000,000,000.  The 
transactions  through  the  clearing  houses, 
therefore,  representing  the  multiplied  ac- 
tivities necessary  to  produce  such  net 
earnings,  were  eleven  times  their  amount. 
In  France,  the  payments  into  the  Bank 
of  France  in  1903  were  174,971,000,000 
francs  ($33,770,000,000),  which  is  about 
seven  times  the  national  income.  In  the 
case  of  Great  Britain,  the  clearings  at 
London  in  1903  were  ^10,119,825,000 
($49,340,000,000),  which  is  about  five 
times  the  national  income.  An  indica- 
tion of  the  growth  of  clearings  in  these 
three  principal  countries,  reduced  to 
American  money,  is  afforded  by  the  fol- 
lowing brief  comparative  table  : 


Year. 

New  York. 

London. 

Bank  of  France. 

1870.    . 
1880.    . 
1890.    . 
1899.    . 
1903.    • 

$27,804,539,406 
37,182,128,621 
37,660,686,572 
57,368,230,771 
70,833,655,940 

$20,000,000,000 
28,200,000,000 
38,100,000,000 
44,600,000,000 
49,340,000,000 

$  9,460,000,000 
14,530,000,000 
16,000,000,000 
28,370,000,000 
33,700,000,000 

144    Wall  Street  and  the  Country 

This  great  structure  of  credit  has  grown 
up  entirely  within  half  a  century,  as  a  nec- 
essary factor  in  the  new  machinery  of 
production  and  exchange.  The  early 
banks  were  conducted  mainly  with  the 
capital  of  their  own  shareholders,  and  the 
fortunate  few  who  had  accumulated  wealth 
by  patient  industry,  colonial  trading,  or  by 
careful  lending  of  money.  It  remained 
for  the  last  half  of  the  nineteenth  century 
to  bring  to  all  the  banks  in  the  advanced 
civilized  countries  a  flood  of  the  saved 
capital  of  people  of  small  and  moderate 
means.  The  new  conditions  of  produc- 
tion, with  higher  wages  for  labor,  and  the 
increase  in  the  proportion  of  the  profes- 
sional classes  to  the  aggregate  population, 
gave  the  ability  to  save,  without  the  sacri- 
fice of  comforts,  to  hundreds  of  thousands 
of  men,  who,  under  earlier  conditions, 
would  have  been  barely  able  to  maintain 
the  struggle  for  existence.  Hence  came 
the  great  increase  in  deposits  in  the  com- 
mercial banks  and  the  creation  of  savings 
banks  for  the  masses.  There  came  also, 
as  a  necessary  incident  to  the  gathering 


Recent  Economic  Progress    145 

of  capital  for  manufacturing  and  for  rail- 
way construction,  the  issue  of  titles  to 
wealth  in  a  new  form,  representing  divisi- 
ble shares  in  these  new  enterprises. 

This  new  form  of  wealth,  almost  wholly 
a  creation  of  the  free  play  of  capital  under 
modern  conditions,  consists  of  the  shares 
and  bonds  of  stock  companies.  The  prin- 
ciple of  limited  liability,  which  applies  to 
most  stock  companies,  is  the  result  of 
comparatively  recent  legislation.  In  the 
absence  of  such  laws  stock  companies 
would  be  liable  for  all  the  debts  of  the 
company  with  their  entire  property,  as  are 
the  members  of  a  private  firm.  The  princi- 
ple of  limited  liability  permits  a  man  to 
embark  with  many  others  in  a  large  enter- 
prise, with  exact  knowledge  of  the  amount 
that  he  risks. 

Few  men  would  care  to  buy  railway 
shares  or  bank  capital  if  they  ran  the  risk 
of  having  their  entire  fortunes  appropri- 
ated to  pay  the  debts  of  the  railway  in 
case  it  went  into  the  hands  of  a  receiver, 
or  if  they  were  compelled  to  pay  all  the 
depositors  of  a  bank  in  case  of  failure. 


146    Wall  Street  and  the  Country 

Limited  liability  is  essential,  therefore,  to 
induce  the  owners  of  capital  to  go  into 
such  enterprises  ;  it  is  also  a  matter  of 
convenience  in  subdividing  their  expense 
and  in  combining  under  a  single  manage- 
ment the  savings  of  many  hundreds  and 
even  thousands  of  persons.  It  permits 
the  man  with  saved  capital  to  invest  it  in 
profitable  enterprises  without  exercising 
personal  supervision  over  his  investment, 
except  so  far  as  he  wishes  to  participate 
in  meetings  of  shareholders  to  secure 
honest  and  efficient  control. 

Government  debts, — the  first  form  of 
negotiable  securities,  —  gradually  paved 
the  way  for  the  issue  of  railway  bonds  and 
stock,  and  of  shares  in  manufacturing  and 
other  industrial  enterprises.  The  re- 
markable growth  in  capital  and  its  issues 
in  the  form  of  securities  is  indicated  by 
the  fact  that  in  1789,  the  number  of  se- 
curities listed  on  the  Paris  Stock  Ex- 
change was  only  1 7,  and  that  as  late  as  the 
year  1815  the  shares  of  only  30  companies 
were  listed  in  London,  20  in  Paris,  and 
ii  in  Berlin.  In  1897  the  number  of 


Recent  Economic  Progress    14? 

French  securities  admitted  to  the  official 
exchange  was  493,  representing  a  nomi- 
nal capital  of  59,142,400,000  francs,  or 
more  than  eleven  thousand  millions  of 
dollars.  There  were  also  admitted  to  the 
official  stock  exchange  236  foreign  se- 
curities, representing  French  investments 
abroad  of  about  26,000,000,000  francs. 
Great  Britain  easily  leads  the  world  in  the 
volume  of  her  stock  exchange  business. 
The  value  of  her  securities  was  com- 
puted in  1895  at  ^7,246,902,726,  or  about 
$36,000,000,000.  This  represents  more 
than  all  the  wealth  of  Great  Britain  or 
the  United  States  at  the  beginning  of 
the  century,  and  perhaps  more  than  all  the 
wealth,  exclusive  of  land,  held  at  that 
time  in  the  civilized  world. 

A  calculation,  made  under  the  auspices 
of  the  International  Statistical  Institute, 
in  1895,  put  the  total  transferable  wealth 
of  the  leading  European  countries,  includ- 
ing stock  exchange  securities,  mortgages, 
and  savings  deposits,  at  $85,000,000,000. 
An  annual  computation  which  is  made 
in  Brussels  by  the  leading  financial 


148    Wall  Street  and  the  Country 

journal  there,  the  Moniteur  des  Inter- 
£ts  Matdriels,  puts  the  issue  of  new  se- 
curities in  Europe  at  9,129,054,150  francs 
in  1896  ;  8,91 1,870,530  in  1897  ;  8,902,776- 
660  in  1898;  10,577,406,550  in  1899;  n,- 
863,434,990  in  1900;  9>937>39°»o6°  in 
1901;  and  18,639,839,650  francs  in  1902. 

These  large  issues  of  new  securities 
have  been  the  natural  result  of  a  great  in- 
crease in  the  number  and  capitalization 
of  stock  companies.  An  outburst  of  ac- 
tivity in  the  creation  of  such  companies 
has  been  one  of  the  marked  features  of 
the  modern  era  of  industrial  growth.  In 
Great  Britain,  the  organization  of  stock 
companies  was  1302  in  1880,  with  a  total 
capital  of  ^168,466,322,  which  rose  in 
1890  to  2789,  with  a  capital  of  ,£238,759,- 
472  ;  in  1895  to  3892,  with  a  capital  of 
,£231,368,077;  in  1898  to  5182,  with  a 
capital  of  ^272,287,690  ;  in  1900  104966, 
with  a  capital  of  £221,827,934;  in  1901 
to  3433,  with  a  capital  of  ,£i44>76°>333  ; 
and  in  1902  to  3933,  with  a  capital  of 
^156,714,468  ($765,000,000). 

The   figures  regarding  the  companies 


Recent  Economic  Progress    149 

actually  continuing  in  business  in  Great 
Britain  from  year  to  year,  showing  the 
sifting  out  of  the  incompetent  and  the 
gradual  additions  to  working  capital  of 
the  more  efficient,  afford  a  more  accurate 
test  of  the  accumulated  capital  resources 
of  the  country.  The  total  number  of 
such  companies  was  estimated  in  April, 
1884,  to  be  8692,  with  a  paid-up  capital 
of  ,£475,551,294.  The  total  rose  more 
than  60  per  cent  by  April,  1890,  when 
the  number  was  13,323,  and  the  paid-up 
capital  was  ,£775,1 39,553.  A  further  in- 
crease carried  the  number  in  1899  to 
27,969  with  paid-up  capital  of  ^1,512,- 
098,098  ;  in  1900  to  29,730,  with  paid-up 
capital  of  ,£1,622,641,406 ;  in  1901  to 
31,429,  with  paid-up  capital  of  ,£1,725,- 
940,512;  and  in  1902  to  33,259,  with 
paid-up  capital  of  ,£1,805,141, 165  ($8,800,- 
000,000). 

In  Germany  the  organization  of  the  em- 
pire under  a  common  head  and  the  large 
fund  of  capital  brought  into  the  country 
by  the  war  indemnity  paid  by  France, 
resulted  in  a  stimulus  to  the  creation 


150    Wall  Street  and  the  Country 

of  stock  companies,  which  caused  the 
formation  of  479  in  1872,  with  a  capital  of 
1,477,700,000  marks  ($360,000,000),  and 
242  in  1873,  with  a  capital  of  544,200,000 
marks.  Then  came  the  effects  of  the 
crash  of  the  latter  year,  which  reduced 
the  organization  of  companies  to  a  mini- 
mum of  42  in  1876,  with  a  capital  of 
18,200,000  marks.  There  was  a  slight 
revival  of  activity  in  1880  and  in  1889,  but 
it  was  only  with  the  year  1895  that  the 
creation  of  stock  companies  upon  a  more 
solid  basis  again  attained  striking  figures. 
The  number  of  companies  organized  in 
1895  was  161,  with  a  capital  of  250,700,- 
ooo  marks ;  1897,  254  companies,  with  a 
capital  of  380,500,000  marks;  1898,  329 
companies,  with  a  capital  of  463,600,000 
marks;  and  1899,  3^4  companies,  with  a 
capital  of  544,400,000  marks  ($135,000,- 
ooo) .  Then  came  the  industrial  reaction 
which  carried  down  the  number  of  com- 
panies formed  in  1900  to  261,  with  capital 
of  340,460,000  marks;  in  1901,  158,  with 
capital  of  158,250,000  marks  ;  in  1902,  87, 
with  capital  of  1 18,430,000  marks  ;  and  in 


Recent  Economic  Progress    15' 

1903,  84,  with  capital  of  300,036,000  marks 
($75,000,000). 

The  growth  of  corporations  in  Russia 
has  been  even  more  remarkable.  The 
capital  of  all  stock  companies  organized 
during  the  nineteenth  century,  up  to  the 
close  of  1899,  was  about  2,383,000,000 
rubles  ($1,200,000,000),  or  as  much  as 
the  issues  of  the  single  year  1899  in 
Great  Britain.  But  of  this  amount  more 
than  half  was  authorized  during  the  five 
years  beginning  with  1895.  The  highest 
record  reached  prior  to  that  year  was  in 
1890,  when  the  issues  of  capital  were 
63,415,000  rubles.  The  issues  for  1895 
rose  to  129,363,000  rubles;  1896,  232,- 
640,000  rubles  ;  1897,  239,424,000  rubles  ; 
1898,  256,237,000  rubles  and  1899,  358,- 
354,812  rubles  ($187,000,000). 

The  equipment  of  the  civilized  world 
for  grappling  with  the  new  conditions  of 
transportation  and  exchange  would  still 
have  been  incomplete,  in  spite  of  the 
spread  of  the  railways,  and  the  accumula- 
tion of  transferable  capital,  but  for  the, 
series  of  inventions  which  promote  quick, 


I 


152     Wall  Street  and  the  Country 

communications.  The  post-office,  the 
telegraph,  the  ocean  cable,  and  the  tele- 
phone were  an  almost  necessary  supple- 
ment of  the  more  substantial  and  visible 
instruments  of  the  new  economic  order. 
In  Great  Britain  and  in  the  United 
States,  the  use  of  the  mails  doubled  within 
the  twenty  years  which  closed  the  nine- 
teenth century.  The  number  of  letters 
delivered  in  the  United  Kingdom  of 
Great  Britain  and  Ireland  rose  from 
1,165,000,000  in  the  fiscal  year  1881,  to 
2,323,600,000  in  1900  and  2,451,500,000 
in  1901.  The  average  number  per  capita 
rose  in  the  meantime  by  more  than  60 
per  cent,  from  34  to  59.  The  number  of 
newspapers  and  packets  delivered  in- 
creased by  more  than  150  per  cent,  from 
364,000,000  in  1 88 1  to  936,000,000  in 
1901. 

An  exact  account  is  not  kept  in  the 
United  States  of  the  number  of  pieces  of 
mail  matter  handled,  but  an  illustration 
of  the  progress  made  is  afforded  by  the 
number  of  postage  stamps  and  other 
pieces  of  stamped  paper  which  are  sold  at 


Recent  Economic  Progress    153 

the  post-offices.  The  number  of  pieces 
of  stamped  paper  thus  issued  was  1,490,- 
773,498  in  1 88 1,  representing  a  face  value 
of  $34,483,503.  The  amount  substan- 
tially doubled  in  1890,  when  the  number 
of  pieces  was  3,183,741,338,  and  their 
value  was  $59,458,054,  and  nearly  trebled 
for  the  fiscal  year  1900,  when  the  number 
of  pieces  was  5,283,687,010,  and  the  face 
value  was  $97,640,897. 

Thus,  within  nineteen  years,  with  an 
increase  of  about  50  per  cent  in  popula- 
tion, there  was  an  increase  of  nearly  200 
per  cent  in  the  postal  expenditure  of  the 
people,  and  their  per  capita  postal  ex- 
penditures rose  from  70  cents  to  $1.30. 
The  prosperous  period  of  the  next  few 
years  brought  a  further  increase  to  6,06 1,- 
456,127  pieces  of  stamped  paper  for  the 
fiscal  year  1902,  with  a  face  value  of 
$112,665,553,  and  to  7»034>732»035  pieces 
in  1903,  with  a  face  value  of  $129,430,173. 
Thus  in  three  years  from  1900  to  1903, 
there  was  an  increase  of  more  than  30  per 
cent  in  the  value  of  the  postage  used  by 
the  American  people  and  a  consumption 


154    Wall  Street  and  the  Country 

of  more  than  $1.50  per  capita  or  nearly 
$8  for   the   average  family  of  five. 

In  France  the  number  of  letters  passing 
through  the  mails  increased  more  than  60 
per  cent  from  1860  to  1 88 1,  and  more  than 
100  per  cent  from  1881  to  1901.  The 
number  of  letters  delivered  in  1 860  was 
265,352,000,  which  rose  in  1881  to  481,- 
130,349  ;  in  1898  to  718,252,123,  and  in 
1901  to  1,000,920,000.  The  increase  was 
much  more  striking  in  the  delivery  of 
newspapers  and  other  printed  matter, 
which  rose  from  179,138,000  pieces  in 
1860  to  687,692,521  pieces  in  1881,  to 
1,214,039,377  in  1888,  and  to  1,323,269,- 
ooo  in  1901.  In  Belgium  the  delivery  of 
letters  rose  from  nearly  73,419,058  in 
1880  to  162,983,336  in  1900,  and  the  de- 
livery of  newspapers  increased  in  nearly 
corresponding  ratio,  from  71,380,000  in 
1880  to  134,724,720  in  1900.  In  Ger- 
many the  increase  in  letters  was  from 
565,528,000  in  1875  to  73I»755.o°°  in 
1880,  to  1,437,948,000  in  1890,  and  to 
2,893,555,000  in  1900.  In  Austria,  the 
letters  and  post-cards  handled  increased 


Recent  Economic  Progress    155 

from  26,071,000  in  1850  to  148,499,000 
in  1870,  to  538,273,000  in  1890,  and  to 
1,193,418,000  in  1900. 

The  increase  in  the  use  of  the  telegraph 
and  the  telephone  has  been  even  more 
phenomenal.  In  Great  Britain  the  num- 
ber of  messages  sent  rose  from  29,966,- 
965  in  the  fiscal  year  1881,  to  62,368,034 
in  1890,90,415,123  in  1900,  and  92,648,- 
337  in  1901.  A  great  increase  occurred 
after  1885,  when  the  minimum  charge  for 
an  inland  despatch  was  reduced  from  a 
shilling  (24  cents)  to  sixpence  (12  cents). 
In  the  United  States  the  number  of  miles 
of  wire  operated  by  the  Western  Union 
Telegraph  Company  rose  from  112,191  in 
1870  to  802,651  in  1895,  933, 1 53  in  1900, 
and  1,089,212  in  1903.  The  number  of 
offices  rose  from  3972  in  1870  to  21,360 
in  1895,  22,900  in  1900,  and  23,120  in 
1903.  The  number  of  messages  sent  in- 
creased from  9,156,646  in  1870  to  58,307,- 
315  in  1895,  63,167,783  in  1900,  and 
69,790,866  in  1903.  The  Postal  Tele- 
graph Company  increased  its  length  of 
wires  from  23,587  miles  in  1885  to 


156    Wall  Street  and  the  Country 

143,290  miles  in  1898,  and  276,244  in 
1903,  while  the  number  of  messages  rose 
from  1,428,690  in  1885  to  15,407,018  in 
1898,  and  21,600,577  in  1903. 

In  France  the  length  of  telegraph  lines 
rose  from  70,277  kilometres  (43,650  miles) 
in  1 88 1  to  130,830  kilometres  in  1898, 
and  the  kilometres  of  actual  wire  from 
215,136  to  590,713  (366,800  miles).  The 
number  of  messages  increased  within  sev- 
enteen years  from  18,561,038  in  1881  to 
40,146,720  in  1898,  or  by  116  per  cent. 
The  use  of  telephones,  which  was  not  a 
factor  in  communication  in  1 88 1, amounted 
in  1898  to  123,561,310  messages.  In 
Germany,  the  length  of  telegraph  lines 
rose  from  15,048  miles  in  1870  to  37,236 
miles  in  1880,  and  to  84,016  miles  in  1900. 
The  length  of  wire,  which  was  50,287 
miles  in  1870  and  132,476  miles  in  1880, 
rose  in  1900  to  381,026  miles.  The  num- 
ber of  home  messages,  which  was  only 
4,731,919  in  1870  and  9,448,126  in  1880, 
was  28,643,849  in  1900.  These  figures 
are  exclusive  of  Wurtemberg  and  Bavaria, 
two  large  German  states,  whose  telegraph 


Recent  Economic  Progress    157 

mileage  is  more  than  14,000,  and  where 
the  number  of  messages  sent  in  1900, 
within  the  two  kingdoms  alone,  was  about 
1,875,000,  and  the  number  sent  to  foreign 
countries  and  to  other  German  states  was 
nearly  4,000,000.  In  Belgium,  the  mile- 
age of  lines  rose  from  3451  in  1880  to 
3976  in  1900,  because  of  the  compara- 
tively complete  equipment  of  the  small 
area  of  the  country  on  the  earlier  date, 
but  the  number  of  home  messages  in- 
creased more  than  60  per  cent,  from 
2,031,426  in  1880  to  3,377,910  in  1900, 
and  the  number  of  international  messages 
by  more  than  150  per  cent — from  1,035,- 
655  in  1880  to  2,808,239  in  1900. 

The  total  length  of  the  telegraph  and 
cable  wires  of  the  world,  according  to  an 
estimate  presented  by  O.  P.  Austin,  Chief 
of  the  Federal  Bureau  of  Statistics,  at  the 
beginning  of  1899,  was  2,300,000  miles. 
The  length  of  the  land  lines  was  put  at 
662,000  miles,  representing  a  cost  of  $310- 
000,000,  and  the  length  of  ocean  cable 
lines  at  1 70,000  miles,  representing  a  cost 
of  $250,000,000. 


158     Wall  Street  and  the  Country 

What  has  been  set  forth  in  regard 
to  producing  power,  railway  equipment, 
banking  power,  and  means  of  communica- 
tion, represents  in  a  sense  the  processes 
of  modern  production  rather  than  its  re- 
sults. This  splendid  equipment  has  been 
in  operation  for  so  brief  a  period  that  its 
full  capacity  has  only  begun  to  be  tested, 
but  already  its  powers  have  been  demon- 
strated by  a  greatly  increased  m^nufac- 
tured  product,  an  enlarged  volume  of  trade 
between  nations,  and  new  standards  of 
comfort  for  the  masses  of  men.  The 
aggregates  of  the  world's  commerce,  al- 
ready presented,  almost  fail  of  their  proper 
impression  by  their  very  magnitude.  It 
will  be  well,  therefore,  to  set  forth  a  little 
more  in  detail  the  progress  of  the  closing 
decades  of  the  nineteenth  century. 

From  1870  to  1900,  the  wealth  of  the 
United  States  rose  from  $30,068,518,507 
to  $94,300,000,000 — an  increase  of  more 
than  200  per  cent  in  a  generation,  while 
population  advanced  only  half  as  rapidly 

—  from  38,558,37!   to    76>3O3»387-     The 
ratio  of  wealth  per  capita,  therefore,  rose 


Recent  Economic  Progress    159 


from  $779.82  in  1870  to  $1235  in  1900. 
Exports  of  American  merchandise  kept 
pace  with  the  growth  of  wealth,  and  ex- 
ports of  manufactured  articles  rose  with 
phenomenal  rapidity,  when  American 
prices  were  brought  down  to  the  level  of 
those  of  the  world  after  the  panic  of  1893. 
Some  conception  of  the  recent  progress 
of  this  movement  may  be  formed  from 
these  figures  : 

MERCHANDISE  EXPORTS  FROM   THE   UNITED  STATES 


Exports  of  Manufacture. 

Year  ending 
June  30. 

Total  Domestic 
Exports. 

Value. 

Per  cent. 

1860 

$316,242,432 

$40,345,892 

12.76 

1870 

455,208,341 

68,279,764 

15.00 

1880 

823,946,353 

102,856,015 

12.48 

1890 

845,293,828 

i5I>I02,376 

17.87 

i895 

793,392,599 

183,595,743 

23.14 

1898 

1,210,291,913 

290,697,354 

24.02 

1900 

i,37o,763,57i 

433,851,756 

31-55 

1903 

1,392,231,302 

407,526,159 

29.28 

The    growth    of    wealth,    and    foreign 
trade,  was  equally  remarkable  in  the  case 


160    Wall  Street  and  the  Country 

of  Great  Britain.  Exports  of  British 
products  were  ^51,308,000  ($250,000,000) 
in  1840,  and  had  already  risen  in  1870 
to  ^199,640,000  ($975,000,000);  but  the 
amount  rose  in  1890  to  ^263,530,585, 
and  to  ^290,890,281  ($1,415,000,000)  in 
1903.  The  increase  was  not  large,  be- 
cause the  additions  to  British  capital 
began  to  be  employed  abroad  instead  of 
swelling  production  at  home.  This  re- 
sulted in  making  the  borrowing  countries 
tributary  to  Great  Britain,  who  was  able 
to  take  her  dividends  in  a  great  excess 
of  merchandise  importations  over  expor- 
tations.  Imports  of  merchandise  rose 

from  ;£37o>967»955  in  l885  to  /542>9o6,- 
325  ($2,650,000,000)  in  1903.  The  prop- 
erty and  profits  brought  under  review  for 
the  purposes  of  the  income  tax  reached  a 
total  of  ^137,823,000  ($680,000,000)  in 
1815.  They  rose  to  ^527,675,000  in 
1877,  to  ^626,356,000  in  1890,  to  ^"833,- 
355»5T3  in  '901,  and  to  ^"866,993,453 
($4,225,000,000)  in  1902.  Thus  the  brief 
period  of  twenty-five  years,  from  1877  to 
1902,  witnessed  an  increase  of  assessable 


Recent  Economic  Progress    161 

property  amounting  to  ^340,000,000,  or 
nearly  65  per  cent. 

A  natural  consequence  of  the  increased 
productive  power  of  the  civilized  world 
has  been  the  increase  in  the  comfort  of 
the  masses.  While  it  is  sometimes  con- 
tended by  those  who  have  not  carefully 
examined  the  facts,  that  "  the  rich  are 
growing  richer  and  the  poor  poorer,"  the 
statistics  bearing  upon  the  subject  gen- 
erally go  to  sustain  only  the  first  half  of 
the  proposition,  and  to  disprove  the  sec- 
ond half.  While  it  may  be  true  that  the 
distribution  of  the  new  wealth  has  not 
been  altogether  e^stabte,  it  has  been 
almost  inevitable  that  a  large  portion 
should  fall  to  the  laboring  masses,  be- 
cause of  the  employment  of  the  bulk  of 
modern  wealth  in  administering  to  luxury 
or  to  new  production.  Wealth  which  is 
not  kept  in  idle  hoards  tends  to  develop 
new  industries,  to  increase  the  demand 
for  labor,  and  to  thereby  raise  wages  by 
intensifying  the  competition  among  em- 
ployers for  labor. 

There  are  several  interesting  statistical 


162    Wall  Street  and  the  Country 

facts  that  tend  to  support  the  view  that 
the  comfort  of  the  masses  materially  in- 
creased during  the  nineteenth  century, 
and  that  the  number  of  persons  enjoy- 
ing some  of  the  luxuries  of  life  greatly 
increased  in  proportion  to  the  whole  popu- 
lation. Careful  inquiry  by  such  compe- 
tent authorities  as  Col.  Carroll  D.  Wright, 
the  United  States  Commissioner  of  Labor, 
shows  that  wages  in  all  the  chief  lines  of 
manual  labor  were  much  higher  at  the 
close  of  the  century  than  at  its  beginning. 
Advances  in  wages  were  slow  during 
the  Revolutionary  and  Colonial  periods, 
but  the  advance  in  mechanical  industries 
attained  a  constantly  accelerating  impetus 
after  the  introduction  of  the  factory  sys- 
tem. In  1790,  carpenters  were  paid  less 
than  60  cents  a  day.  This  rose  to  $1.09 
in  1810  and  to  about  $1.40  in  the  North 
by  1840.  Laborers,  paid  43  cents  a  day 
in  1790,  were  receiving  from  87.5  cents  to 
$1.00  by  1860.  Shoemakers,  who  received 
73.5  cents  in  1790,  were  paid  $1.70  in  1860. 
The  average  wages  during  the  ten  years 
ending  with  1860  gave  to  agricultural 


Recent  Economic  Progress    163 

laborers  $1.01  per  day,  to  blacksmiths, 
$1.69,  to  carpenters,  $2.03,  to  masons, 
$1.53,  to  mill  operatives,  87  cents. 

Then  came  the  great  outburst  of  rail- 
way building  and  machine  industry,  which 
made  the  closing  decade  of  the  nine- 
teenth century  so  notable  in  economic 
history.  The  subject  of  wages  and  hours 
of  labor  during  this  period  was  investi- 
gated under  the  authority  of  the  Senate 
Committee  on  Finance  by  Prof.  Roland 
P.  Falkner,  in  1891.  The  result  re- 
duced  all  wages  to  percentages  based 
upon  those  of  1860  as  the  unit.  The 
figures  showed  that  when  wages  were  re- 
duced to  a  gold  basis,  they  averaged  in 
1840  87.7  per  cent  of  the  wages  of  1860. 
Then  came  the  period  of  greenback  issues 
during  the  Civil  War,  when  wages  in 
paper  were  high,  but  represented  only 
66.2  per  cent  in  gold  of  the  rates  of  1860. 
The  upward  movement  was  rapid  as  the 
premium  on  gold  fell,  and  the  gold  wages 
of  1872,  when  prices  were  also  high,  were 
152.2  per  cent  of  those  of  1860.  There 
was  a  fall  during  the  years  of  depression 


1 64    Wall  Street  and  the  Country 

that  carried  wages  as  low  as  135.2  in 
1876,  but  even  at  this  time,  their  pur- 
chasing power  was  probably  quite  as  large 
as  in  1872,  because  of  the  fall  in  prices  of 
nearly  all  manufactured  articles  and  of 
other  necessaries  of  life. 

After  the  resumption  of  specie  pay- 
ments began  a  new  upward  movement  in 
gold  wages,  which  carried  them  in  1880 
to  141.5  per  cent  of  the  rates  of  i$6o,  to 
158.9  per  cent  for  1890,  and  to  103.43  Per 
cent  of  the  wages  of  1891  for  the  year 
1900.  This  upward  movement  of  wages 
went  on  while  the  average  working  hours, 
which  were  11.4  in  1840,  fell  to  eleven 
hours  in  1860,  to  ten  and  a  half  hours  in 
1870,  to  10.3  in  1880,  and  to  ten  hours  in 
1889.  This  was  the  average  of  all  lead- 
ing mechanical  industries,  including  some 
in  which  long  hours  still  prevail,  but 
others  in  which  the  time  has  fallen  con- 
siderably below  ten  hours  a  day.  Com- 
paring the  hours  of  labor  with  the  rate  of 
wages,  it  appears  that  the  amount  of 
money  now  paid  is,  substantially,  twice 
that  paid  half  a  century  ago  for  a  day 


Recent  Economic  Progress    165 

which  is  at  least  thirteen  per  cent  shorter 
than  that  under  the  smaller  wages. 

The  upward  movement  of  wages  has 
been  accompanied  by  the  downward 
movement  of  prices.  This  proposition 
would  be  an  incredible  paradox,  if  there 
had  not  been  so  great  an  increase  in  the 
productive  power  of  labor  by  means  of 
machinery.  A  simple  average  of  prices 
for  all  commodities,  taking  1860  as  the 
unit,  showed  average  prices  for  the  five 
years  ending  with  1844,  of  108.8  ;  which 
advanced  during  the  paper-money  period 
as  high  as  178.8  for  the  five  years  ending 
with  1869,  but  fell  to  92.3  for  1891.  The 
purchasing  power  of  wages,  therefore,  is 
considerably  greater  than  is  their  nominal 
increase  in  money.  If  this  fact  is  not 
clear  to  all  wage  earners,  it  is  largely  be- 
cause there  are  so  many  articles,  like  glass, 
chinaware,  wall-paper,  carpets,  and  the  finer 
grades  of  clothing,  that  are  now  considered 
necessaries  in  the  life  of  the  laborer, 
which  were  not  enjoyed  at  all,  or  only  in 
inferior  qualities,  when  the  productive 
power  of  the  human  race  was  smaller. 


1 66    Wall  Street  and  the  Country 


Definite  proof  of  the  increased  con- 
sumption of  high-grade  food  products  by 
the  masses  can  be  found  in  the  statistics 
of  certain  countries.  The  British  returns 
of  colonial  products  imported  per  capita 
are  among  the  most  authentic  of  these 
statistics,  and  they  reveal  some  astonish- 
ing results.  The  table  which  follows 
shows  the  per  capita  consumption  of 
sugar,  tea,  and  tobacco  in  the  United 
Kingdom  for  representative  fiscal  years  : 

CONSUMPTION    IN    GREAT    BRITAIN 
(In  Pounds  Per  Capita) 


Sugar. 

Year. 

Raw. 

Refined. 

Tea. 

Tobacco. 

1840 

15.20 



1.22 

0.86 

1880 

53.98 

9.42 

4-57 

1.42 

1885 

59-05 

15-89 

5.06 

1.46 

1890 

44-99 

28.22 

5-!7 

1-55 

1895 

48.04 

40.09 

5.67 

1.67 

1898 

39-89 

45-29 

5-86 

1.83 

1899 

35.63 

48.68 

5.98 

1.89 

1900 

35-26 

51-9° 

6.07 

i-95 

1901 

32.18 

56.81 

6.16 

1.89 

1902 

35-°5 

48.90 

6.06 

1.92 

Recent  Economic  Progress    167 

These  figures  show  that  within  the  past 
sixty  years  the  consumption  of  tea  by  the 
British  people  has  increased  more  than 
fourfold  per  head,  and  that  the  consump- 
tion of  tobacco  has  more  than  doubled. 
The  increase  since  1880  has  been  more 
than  25  per  cent  in  tea,  and  an  equal 
amount  in  tobacco.  There  has  been, 
therefore,  not  only  a  great  increase  in  the 
quantity  of  these  articles  consumed, — ar- 
ticles which  by  the  laborer  of  a  century 
ago  would  have  been  rated  as  unattaina- 
ble luxuries, — but  there  has  been  a  grow- 
ing preference  for  the  best  article  of  its 
kind  on  the  market.  This  is  demon- 
strated especially  by  the  increased  pro- 
portion of  refined  sugar  used,  in  place  of 
the  brown  raw  sugar  which  was  so  gen- 
erally consumed,  even  by  the  well-to-do, 
before  the  price  of  refined  sugar  was 
forced  down  by  competition  and  by  the 
adoption  of  the  most  efficient  methods  of 
refining. 

With  the  evidences  of  larger  earnings, 
shorter  hours,  and  better  living  for  the 
masses,  may  be  put  the  evidences  of  wider 


i68    Wall  Street  and  the  Country 

opportunity  for  a  career  through  the  in- 
crease in  the  numbers  of  the  professional 
classes.  This  increase  is  due  primarily  to 
the  fact  that  there  is  a  larger  surplus  of 
capital  and  labor  in  the  community  than 
in  previous  generations,  above  what  is  re- 
quired for  producing  food,  clothing,  and 
shelter.  If  the  production  of  living  ne- 
cessities required  in  an  early  stage  of 
civilization  the  continuous  labor  of  four- 
fifths  of  the  population,  and  improvement 
in  machinery  or  in  methods  of  production 
permitted  these  necessities  to  be  produced 
at  a  later  date  by  three-fifths,  it  is  clear 
that  one-fifth  of  the  population  would 
thereby  be  released  for  producing  things 
which  could  not  be  enjoyed  at  all  before. 
Hence  comes  the  multiplication  of  law- 
yers, physicians,  literary  and  pictorial  ar- 
tists, and  the  ability  of  civilized  countries 
to  bear  a  heavy  burden  of  taxation  for 
building  roads,  improving  harbors,  paving 
and  lighting  city  streets,  and  for  providing 
a  better  education  and  wider  opportunities 
for  every  citizen. 

The  many  facts  which  have  been  given, 


Recent  Economic  Progress    169 

showing  the  rapidity  of  industrial  and 
economic  development  during  the  closing 
generation  of  the  nineteenth  century,  are 
an  index  of  the  great  accumulation  of  capi- 
tal which  has  resulted  from  the  increased 
efficiency  of  labor  which  machinery  and 
industrial  combination  has  made  possible. 
The  masses  of  the  people  live  much  better 
as  a  result  of  their  increased  productive 
power  than  was  the  case  at  the  beginning 
of  the  nineteenth  century,  or  even  at  the 
beginning  of  the  last  generation  of  that 
century. 

So  far  as  they  consume  more  than  they 
formerly  did,  they  do  not  contribute  so 
rapidly  to  the  accumulation  of  capital  as 
if  they  employed  their  increased  produc- 
tive power  entirely  in  savings.  As  pro- 
duction, however,  must  necessarily  be  for 
consumption  in  some  form,  the  increased 
productive  power  of  the  masses,  so  far  as  it 
had  been  applied  to  direct  consumption, 
has  caused  a  demand  for  many  classes  of 
goods  which  has  justified  the  creation  of 
new  enterprises  and  their  equipment  with 
the  most  efficient  modern  machinery. 


1 70    Wall  Street  and  the  Country 

Every  such  enterprise,  by  increasing  the 
productive  power  of  labor  and  therefore 
the  remuneration  of  the  aggregate  labor 
of  the  world,  has  increased  the  capacity 
for  saving.  So  far  as  this  capacity  has 
been  exercised,  there  has  been  brought 
into  the  money  market  a  great  fund  of 
saved  capital  seeking  investment  in  safe 
dividend-paying  securities.  It  is  the  al- 
most bewildering  rapidity  with  which  this 
fund  has  increased,  as  already  pointed  out, 
which  has  taxed  the  resources  of  honest 
financiers  to  find  employment  for  it  and 
has  led  the  less  scrupulous  or  more  ven- 
turesome to  devise  projects  of  doubtful 
utility  for  meeting  the  demand  for  profita- 
ble investment. 


PUTTING  CHINA  ON  THE  GOLD  STANDARD 

WESTERN  civilization  has  seemed,  during 
the  last  few  years,  to  be  sighing  with 
more  restlessness  than  Alexander  for  new 
worlds  to  conquer  for  its  inventive  genius 
and  its  financial  and  economic  organiza- 
tion. Such  conquests,  happily,  where 
they  do  not  raise  the  question  of  terri- 
torial acquisition,  benefit  alike  those  who 
make  them  and  the  countries  where  they 
are  made.  Railway  construction  within 
the  past  decade  has  traversed  the  steppes 
of  Siberia,  bringing  the  West  within  two 
weeks'  journey  of  the  extreme  Orient ; 
has  connected  Europe  with  Central  Asia 
and  the  Caspian  Sea,  and  has  carried  the 
shriek  of  the  locomotive,  through  the  cities 
where  Paul  preached,  to  the  capitals  of  the 
ancient  civilizations  of  Nebuchadnezzar 
and  Xerxes.  A  railway  is  being  com- 
171 


1 72    Wall  Street  and  the  Country 

pleted  from  "  Cairo  to  the  Cape,"  which 
is  sending  offshoots  through  the  heart  of 
Africa  and  spreading  the  arts  of  civiliza- 
tion through  a  country  which,  a  genera- 
tion ago,  could  hardly  be  traversed  by  the 
most  hardy  explorers  under  armed  escort. 
Familiar  as  are  the  arguments  for  the 
benefits  derived  from  railways,  their  real 
influence  as  agents  alike  of  civilization  and 
centralized  power  is  often  overlooked. 
They  have  made  possible  political  unions 
which  would  otherwise  be  extremely  diffi- 
cult. Many  were  found  who  predicted 
that  the  American  Union  would  fall  to 
pieces  of  its  own  weight  when  it  extended 
to  Oregon,  and  the  maintenance  of  Rus- 
sian power  in  Asia  would  hardly  be  pos- 
sible without  her  network  of  ways  of  steel. 
The  recent  history  of  Mexico  is  another 
case  in  point.  Insurrections  against  the 
central  authority,  which  once  spread  for 
weeks  before  they  were  even  known  at  the 
capital,  can  now  be  suppressed  by  the  use 
of  the  telegraph  and  the  railway  almost 
before  they  have  taken  form.  The  rail- 
way system  in  China  is  yet  in  its  infancy, 


A  Gold  Standard  for  China    1 73 

but  the  country  promises  soon  to  be  grid- 
ironed  with  bands  of  steel,  which  will  open 
a  new  chapter  in  her  economic  life.  In 
addition  to  the  four  roads  already  in  op- 
eration to  the  extent  of  nearly  a  thousand 
miles,  not  less  than  five  great  lines  are  in 
process  of  construction,  which  will  con- 
nect the  chief  cities  of  the  interior  and  the 
coast.  Concessions  for  half  a  dozen  others 
have  been  granted,  the  plans  for  which 
are  being  rapidly  perfected. 

With  the  unification  of  national  econ- 
omic life,  which  will  come  to  China  with 
the  extension  of  railways,  must  inevitably 
come  also  many  other  elements  of  western 
civilization.  Among  these  will  be  the 
use  of  money  and  the  adoption  of  modern 
methods  of  credit.  Wherever  a  railway  is 
in  process  of  construction,  coined  money 
will  be  required  for  buying  the  products 
of  the  country  and  paying  wages.  Where- 
ever  a  railway  is  in  operation,  money  will 
be  the  only  practicable  medium  for  paying 
freights.  Hence  railway  extension  will 
open  new  fields  for  the  use  of  money 
and  introduce  masses  of  the  Chinese 


174    Wall  Street  and  the  Country 

people  to  the  commercial  habits  of  the 
West.  One  of  the  next  logical  steps,  there- 
fore, in  the  opening  of  China  will  be  the 
adoption  of  a  national  system  of  currency. 

China  has  at  present  no  national  cur- 
rency. So  far  as  coined  money  is  used, 
it  consists  chiefly  of  foreign  coins.  The 
Mexican  silver  dollar  has  been  for  three 
centuries  current  on  the  seaboard.  Re- 
cently it  has  encountered  competition 
from  the  British  dollar  of  the  same  weight 
and  value,  coined  at  Bombay,  and  from 
the  French  piaster,  also  of  the  same  weight 
and  value,  coined  at  Paris  for  the  use  of 
the  French  possessions  in  Indo-China. 
But  in  the  interior  of  the  Celestial  Em- 
pire coined  money  is  not  used  at  all. 
There  is  a  medium  of  exchange,  however, 
in  the  form  of  copper  cash  and  silver 
shoes  or  sycee,  the  latter  being  cut  into 
parts  to  meet  the  needs  of  different 
transactions. 

The  people  of  the  interior  of  China 
probably  have  not  yet  realized  the  extent 
to  which  the  lack  of  coined  money  hampers 
the  development  of  trade.  On  the  sea- 


A  Gold  Standard  for  China    175 

coast,  however,  another  element  has  en- 
tered into  the  problem,  which  is  stimulating 
the  demand,  even  among  the  Chinese  mer- 
chants, for  sweeping  reform  in  the  mone- 
tary system.  This  element  is  the  frequent 
change  in  the  gold  price  of  silver  bullion. 
All  the  silver  coins  in  use  in  China  circu- 
late substantially  for  their  bullion  value 
and  upon  the  silver  basis.  For  many 
years  the  disadvantages  of  the  fall  of  sil- 
ver were  felt  in  China,  but  they  have  be- 
come acute  during  the  past  few  years. 
Silver  fell  from  about  3oJ-d.  per  ounce  in 
the  summer  of  1900  to  about  25d.  in  the 
autumn  of  that  year,  and  again  from  that 
figure  to  2i^d.  in  November  of  1902. 
The  last  fall  produced  a  paralyzing  effect 
upon  the  import  trade  of  both  foreign 
and  Chinese  merchants  doing  business  in 
China,  and  by  reducing  the  gold  value 
of  the  public  revenue  crippled  the  Gov- 
ernment in  its  ability  to  meet  the  indem- 
nity payments  to  the  Powers. 

When  Mexico,  therefore,  towards  the 
close  of  1902,  appealed  to  China  to  co- 
operate with  her  in  seeking  some  remedy 


176    Wall  Street  and  the  Country 

for  the  fluctuations  of  exchange  with  the 
gold  countries,  she  received  a  prompt  re- 
sponse. Mexico  has  been  progressing 
rapidly  in  recent  years.  This  progress 
has  been  interpreted  by  some  of  the  ar- 
dent friends  of  silver  as  due  to  the  mone- 
tary standard  rather  than  to  the  energy  of 
the  people,  the  extension  of  railways,  the 
abolition  in  1896  of  tariff  barriers  between 
the  States,  and  the  many  other  economic 
and  political  reforms  introduced  by  Presi- 
dent Diaz  and  the  group  of  able  men 
around  him.  Mexico  has  begun  to  recog- 
nize, however,  the  great  disadvantage  of 
a  monetary  standard  which  differs  from 
that  of  the  commercial  countries  with 
which  she  deals.  Not  only  is  her  import 
and  export  trade  seriously  hampered,  but 
hundreds  of  millions  of  capital  which  would 
eagerly  be  invested  in  the  extension  of 
her  railways  and  the  development  of  her 
lead  and  copper  mines  are  withheld  be- 
cause of  the  fear  that  if  converted  from 
gold  into  silver  its  gold  value  might  fall 
to  a  point  which  would  extinguish  even 
very  considerable  silver  profits. 


A  Gold  Standard  for  China    177 

V 

Mexico  and  China,  therefore,  joined,  in 
January,  1903,  in  asking  the  United  States 
to  aid  them  in  presenting  to  other  govern- 
ments the  question  of  securing  stability  of 
exchange  between  the  currencies  of  the 
gold-standard  and  of  the  silver-using  coun- 
tries. President  Roosevelt,  under  the 
authority  of  Congress,  responded  by  the 
appointment  of  a  commission,  composed 
of  Hugh  H.  Hanna,  Charles  A.  Conant, 
and  Jeremiah  W.  Jenks,  which  has  re- 
cently concluded  its  presentation  of  the 
subject  to  the  European  Powers  having 
large  commercial  interests  in  the  Chinese 
Empire. 

The  first  aim  of  the  American  and 
Mexican  commissions  has  been  to  put 
China  upon  the  gold  standard.  They 
recognized  from  the  first  that  such  a  policy 
was  surrounded  by  difficulties,  but  they 
believed  those  difficulties  could  be  over- 
come by  patience,  energy,  and  skill.  The 
lack  of  any  national  monetary  system 
whatever  in  China,  while  an  obstacle  in 
some  ways  to  the  introduction  of  a  new 
system,  is  in  other  ways  an  advantage. 


178    Wall  Street  and  the  Country 

The  Chinese  Government  escapes  the 
burden  which  it  would  be  compelled  to 
assume  if  it  had  to  undertake,  as  Russia 
did  in  1894,  or  as  Spain  is  trying  to  do  at 
the  present  time,  to  raise  a  great  mass  of 
depreciated  paper  or  silver  to  a  fixed  gold 
par.  For  China  there  is  no  such  prob- 
lem, because  her  Government  is  not  re- 
sponsible legally  or  morally  for  the  coins 
of  foreign  countries  in  circulation  in  her 
seaports.  She  is  undoubtedly  bound  by 
the  highest  considerations  of  financial 
policy  not  to  take  any  step  which  will  para- 
lyze commerce  and  destroy  confidence, 
but  this  she  will  be  able  to  do,  under  in- 
telligent management,  without  assuming 
the  burden  of  redeeming  at  an  enhanced 
gold  value  the  money  now  in  circulation. 
Another  element  of  difficulty  in  the  in- 
troduction of  a  new  system  into  China  lies 
in  the  privileges  now  enjoyed  by  the  vice- 
roys in  regard  to  coinage  and  by  the  local 
Chinese  bankers  in  drawing  profits  from 
the  exchange  of  moneys.  In  the  intro- 
duction of  a  national  monetary  system  it 
is  essential  that  the  right  to  coin  and  issue 


A  Gold  Standard  for  China    179 

money  shall  be  concentrated  in  the  hands 
of  the  central  government.  The  power 
of  the  viceroys,  however,  is  too  great  to 
allow  of  their  privileges  being  taken  away 
abruptly  and  without  their  consent. 

Fortunately  for  the  future  of  China,  the 
viceroys  in  several  of  the  leading  prov- 
inces are  now  men  of  ability,  foresight, 
and  patriotism,  and  are  themselves  likely 
to  aid  powerfully  in  giving  China  the 
benefits  of  a  national  monetary  system. 
Through  reorganization  of  the  taxes  and 
perhaps  the  payment  of  commissions  in 
distributing  the  new  money,  some  com- 
pensation for  taking  away  the  right  of 
coinage  can  be  made,  which  will  prevent 
heavy  loss  of  revenue  by  the  viceroys  in 
the  early  stages  of  the  new  system.  The 
local  bankers,  who  make  large  profits  by 
the  exchange  of  the  silver  sycee  and  the 
copper  cash,  might  also  oppose  the  new 
system  if  similar  compensation  were  not 
made  to  them  in  the  distribution  of  the 
new  currency. 

The  attitude  of  the  foreign  banks  doing 
business  in  China  is  an  important  factor 


i8o    Wall  Street  and  the  Country 

in  the  introduction  of  a  new  monetary 
system.  They  have  made  great  profits 
during  the  last  few  years  by  the  fluctua- 
tions in  the  exchange  with  European  coun- 
tries and  with  the  United  States.  It 
might  seem  that  the  foreign  bankers 
would  hesitate  to  renounce  these  profits 
and  would  oppose  the  introduction  of  a 
uniform  monetary  system.  The  more  the 
subject  has  been  discussed,  however,  the 
more  the  bankers  have  realized  that  en- 
lightened self-interest,  as  well  as  sound 
public  policy,  demands  a  system  which 
will  reduce  the  fluctuations  of  exchange 
to  the  usual  limitations  between  gold 
countries.  On  the  Commissions  appoint- 
ed to  meet  the  Mexican  and  American 
Commissions  at  London,  Paris,  Berlin, 
and  St.  Petersburg  sat  representatives  of 
the  great  banks  doing  business  in  the 
Orient  —  the  Hongkong  and  Shanghai 
Bank  for  Great  Britain,  the  Bank  of  Indo- 
China  for  France,  the  German-Asiatic 
Bank  for  Germany,  and  the  Russo-Chinese 
Bank  for  Russia.  These  gentlemen  all 
agreed  that  the  gold  standard  for  China 


A  Gold  Standard  for  China    181 

was  ultimately  desirable  and  that  meas- 
ures should  be  taken  as  soon  as  practica- 
ble to  put  it  into  effect.  They  appeared 
to  be  influenced  by  the  consideration  that 
what  tended  to  China's  industrial  devel- 
opment would  eventually  benefit  those 
who  conducted  her  banking  business. 

If  the  new  standard  were  to  go  into 
effect  within  ninety  days  throughout  the 
Empire,  undoubtedly  losses  to  the  banks 
would  occur,  so  heavy  as  to  cause  them  to 
hesitate  from  motives  of  self-preservation 
to  see  it  established.  It  is  clear,  however, 
that  even  if  difficulties  give  way  with  un- 
expected ease,  its  introduction  must  be 
gradual.  Introduced  probably  at  first  in 
the  cities  of  the  coast,  where  coin  is  al- 
ready familiar  to  the  people,  it  will  be 
extended  through  one  coast  province  to 
another,  and  will  then  make  its  way  into 
the  interior,  as  the  people  there  find  how 
much  more  convenient  are  coins  of  uni- 
form size  and  ascertained  value  than  the 
silver  bullion  which  has  to  be  weighed 
and  assayed  every  time  it  is  used.  Ex- 
change between  the  cities  on  the  coast 


1 82    Wall  Street  and  the  Country 

and  the  interior  will  continue  to  fluctuate, 
and  the  banks  will  continue  to  derive 
profits  from  this  source  and  from  others 
related  to  the  introduction  of  the  new 
system  while  they  gradually  readjust  their 
methods  to  the  new  economic  future 
of  China  which  will  grow  out  of  the  ex- 
tension of  railways,  the  introduction  of 
foreign  capital,  and  the  extension  of  her 
import  and  export  trade. 

What  is  meant  by  introducing  the  gold 
standard  into  China  deserves  explanation. 
Upon  its  face  the  proposition  appears  to 
many  persons  to  be  impracticable.  If 
China  were  to  acquire  a  gold  currency  of 
$3  per  capita,  which  is  about  one-tenth 
the  monetary  stock  of  the  people  of  the 
United  States,  her  population  of  400,000 
ooo  would  require  $1,200,000,000  of  gold. 
This  would  mean  a  draft  upon  the  world's 
gold  resources  equal  to  one-quarter  of  the 
entire  existing  stock.  The  rich  nations 
of  Europe  and  America  would  undergo  a 
monetary  crisis  if  such  a  demand  were 
successfully  made  upon  them ;  and  the 
financial  resources  of  China  would  be  ut- 


A  Gold  Standard  for  China    183 

terly  incapable  of  making  such  a  demand 
successfully  upon  nations  so  strong  finan- 
cially and  so  vitally  interested  in  keeping 
their  gold.  In  short,  China  could  not  get 
the  gold. 

How,  then,  is  China  to  set  up  the  gold 
standard  ?  Can  she  have  a  gold  standard 
without  a  gold  circulation  ?  If  this  ques- 
tion had  been  asked  a  generation  or  two 
ago,  without  the  experience  of  other 
nations  in  recent  years,  it  would  probably 
have  received  an  emphatic  negative.  For- 
tunately, however,  the  question  has  been 
answered  in  many  lands  under  diverse 
conditions  in  a  manner  which  justifies  a 
decisive  answer  in  the  affirmative.  Brit- 
ish India  has  to-day  a  gold  standard  with- 
out a  gold  currency  ;  the  Netherlands  have 
had  for  thirty  years  a  gold  standard  with- 
out a  gold  currency.  Belgium  is  in  nearly 
the  same  position.  France  has  now  a 
considerable  stock  of  gold,  but  since  1875 
she  has  maintained  at  gold  par  several 
hundred  millions  of  silver.  The  United 
States  have  done  the  same  thing.  Their 
$650,000,000  in  silver,  if  sold  in  the  bul- 


1 84    Wall  Street  and  the  Country 

lion  market  at  present  prices,  would  net 
about  $300,000,000.  The  difference  be- 
tween the  face  value  and  the  bullion  value 
represents  the  power  of  certain  economic 
laws  to  maintain  a  token  currency  at  par 
with  gold. 

Three  means  may  be  counted  upon  to 
maintain  a  silver  currency  at  par  with 
gold.  These  are  (i)  limitation  of  the 
quantity  of  coinage ;  (2)  acceptance  of 
the  coins  at  gold  par  for  public  dues,  and 
in  execution  of  ordinary  contracts  in  legal- 
tender  money,  (3)  the  maintenance  of  a 
gold  reserve  or  gold  exchange  funds. 

The  limitation  of  the  coinage  goes  far 
in  itself  to  maintain  the  value  of  a  cur- 
rency. There  is  always  a  certain  demand 
for  legal-tender  money,  partly  for  settling 
the  customary  transactions  of  retail  trade  ; 
partly  for  the  payment  of  more  formal 
contracts  for  longer  terms,  and  partly  for 
reserves  of  banks  and  merchants  likely  to 
be  called  upon  to  make  money  payments. 
It  is  upon  the  principle  that  a  certain 
proportion  of  legal-tender  money  will  be 
required  in  use,  even  under  the  most  ad- 


A  Gold  Standard  for  China    185 

verse  conditions,  that  the  Bank  of  England 
is  allowed  to  issue  over  ;£  16,000,000  in 
bank  notes  without  any  metallic  reserve. 

In  the  revision  of  the  charter  of  the 
Bank  of  England  in  1844  stress  was  laid 
upon  the  point  that  the  limit  of  "  uncovered 
issues"  (not  protected  by  any  metallic 
reserve)  should  be  fixed  at  the  minimum 
of  the  demand  for  bank  notes  as  shown 
by  the  previous  history  of  the  circulation. 
Within  such  limits  it  may  fairly  be  argued 
that  the  money  issued  will  not  return  to 
the  issuer  for  redemption,  because  it  will 
be  constantly  required  for  carrying  on  the 
internal  trade  of  the  country. 

This  principle  of  scarcity  is  a  potent 
factor  in  keeping  up  the  value  of  money, 
but  is  far  from  being  satisfactory  as  the 
sole  method  of  governing  the  money  of  a 
country.  If  the  principle  is  carried  too 
far,  it  makes  money  scarce  and  interest 
rates  high  ;  if  it  is  not  carried  far  enough, 
it  fails  to  maintain  absolute  parity  by  per- 
mitting the  quantity  of  currency  at  times 
to  exceed  the  demand. 

The   acceptance  of   money  for  public 


1 86    Wall  Street  and  the  Country 

dues  goes  far  to  maintain  its  value,  if  it  is 
not  issued  in  excess.  This  was  demon- 
strated by  the  history  of  the  first  Treasury 
notes  issued  in  the  Civil  War,  which  were 
made  receivable  for  customs  duties  at  par 
with  gold,  a  privilege  which  was  refused 
to  the  later  issues  of  greenbacks.  There 
being  a  demand  for  a  certain  amount  of 
money  to  pay  customs  duties  and  these 
notes  being  the  equivalent  of  gold  for 
such  payment,  they  could  always  com- 
mand a  gold  price  substantially  fixed,  so 
long  as  the  supply  was  not  beyond  the 
demand  for  this  purpose.  The  accept- 
ance of  any  money  for  public  dues  consti- 
tutes a  system  of  indirect  redemption.  So 
long  as  a  vent  can  be  found  for  the  money 
at  the  custom-houses,  at  the  post-offices, 
in  the  purchase  of  internal-revenue  stamps, 
and  at  the  tax  offices  of  city,  State,  and 
nation,  every  holder  of  such  money  knows 
at  least  one  place  at  which  he  can  employ 
it  at  its  full  legal  value.  If  the  quantity, 
therefore,  is  not  far  beyond  requirements 
for  public  dues  and  retail  trade,  this  sys- 
tem of  indirect  redemption  is  an  impor- 


A  Gold  Standard  for  China    187 

tant  factor  in  keeping  up  the  value  of  the 
money. 

These  two  principles — limitation  of  the 
coinage  and  acceptance  for  public  dues — 
have  been  the  controlling  factors  in  keep- 
ing up  the  value  of  the  silver  coins  of  the 
United  States  and  of  the  countries  of  the 
Latin  Union  since  their  value  as  bullion 
fell  below  gold  par  in  the  early  seventies. 
They  do  not  in  themselves,  however,  af- 
ford the  complete  guaranty  of  stability 
which  is  required  in  a  sound  monetary 
system.  The  third  and  conclusive  method 
is  the  maintenance  of  a  gold  fund  to  take 
up  any  excess  which  may  develop  in  the 
volume  of  local  currency.  Whenever  an 
excess  appears  in  the  currency  of  a  coun- 
try, that  excess  tends  to  go  to  other  coun- 
tries where  it  is  likely  to  earn  a  higher 
return.  The  only  money  which  is  thus 
accepted  abroad  among  commercial  na- 
tions to-day  is  gold.  A  nation,  therefore, 
which  proposes  to  maintain  its  currency  at 
absolute  equality  with  gold  must  face  the 
necessity  of  furnishing  gold  on  demand 
for  export.  This  is,  perhaps,  the  most 


1 88    Wall  Street  and  the  Country 

vital  principle  in  the  maintenance  of  a 
gold  standard — that  while  tokens  and  in- 
struments of  credit  serve  well  the  purposes 
of  interior  circulation,  they  must  respond 
to  the  touchstone  of  exchangeability  with 
gold  to  meet  demands  abroad. 

Inasmuch,  however,  as  the  demand  for 
gold  is  a  demand  for  the  use  of  the  metal 
in  other  countries  rather  than  at  home, 
such  a  demand  will  be  effectively  met  by 
furnishing  the  gold  at  the  points  where  it 
is  intended  to  be  delivered.  What  has 
been  done  by  the  government  of  the  Phil- 
ippine Islands  is  to  establish  a  gold  fund 
in  New  York,  against  which  drafts  can  be 
delivered  entitling  the  holder  to  gold  at 
New  York.  It  is  a  similar  policy  which 
is  proposed  by  the  Government  of  Mexico 
in  establishing  its  monetary  system  upon 
stable  foundations.  It  is  a  similar  policy 
which  will  be  recommended  to  the  Gov- 
ernment of  China  as  a  means  of  securing 
the  gold  standard.  If  gold  funds  are  kept 
at  the  leading  financial  centres — London, 
Paris,  Berlin,  St.  Petersburg,  and  New 
York — drafts  can  be  sold  upon  these  funds 


A  Gold  Standard  for  China    189 

whenever  there  is  a  demand  for  gold  for 
making  payments  abroad. 

There  is  one  essential  condition  to  the 
successful  operation  of  this  system.  This 
is  that  whenever  drafts  are  sold  for  local 
currency  the  local  currency  paid  for  them 
shall  be  locked  up  and  withdrawn  from  cir- 
culation. This  operates  to  reduce  the 
redundancy  of  the  currency  at  home,  to 
stiffen  rates  of  interest,  and  ultimately  to 
influence  the  prices  of  commodities  in  a 
downward  direction.  Hence  the  new  sys- 
tem will  operate  under  this  arrangement 
with  the  same  automatic  precision  in  regu- 
lating the  volume  of  the  currency  as  in  a 
country  with  a  gold  currency,  like  Great 
Britain,  where  the  exportation  of  gold  re- 
duces the  volume  of  the  circulation,  and 
by  making  money  scarce  reacts  upon  the 
rates  of  interest.  When  these  operations 
have  produced  their  effect  and  there  comes 
later  a  renewed  demand  for  currency  at 
home,  that  demand  can  be  met  by  the  de- 
posit of  gold  in  the  reserves  at  the  lead- 
ing centres,  thus  replenishing  the  stocks 
reduced  by  the  previous  demands  and 


i go    Wall  Street  and  the  Country 

releasing  local  currency  to  meet  the  de- 
mands for  increased  circulation.  This  is 
substantially  the  plan  which  has  been  in 
successful  operation  in  British  India,  where 
rupees  are  paid  out  at  a  fixed  rate  for  the 
gold  coin  of  Great  Britain. 

Upon  a  plan  like  this,  tending  to  unify 
the  currency  of  China  and  bring  her  with- 
in the  circle  of  great  commercial  nations, 
the  Mexican  and  American  Commissions 
on  International  Exchange  secured  the 
substantial  agreement  of  all  the  great 
Powers  of  Europe.  That  a  national  cur- 
rency was  desirable,  and  that  the  only 
practicable  means  of  attaining  it  was 
through  a  gold-exchange  standard  sub- 
stantially on  the  lines  above  set  forth,  was 
the  unanimous  expression  of  the  commis- 
sions appointed  at  London,  Paris,  The 
Hague,  Berlin,  and  St.  Petersburg.  The 
only  difference  of  opinion  upon  the  cur- 
rency of  China  developed  over  the  ques- 
tion whether  it  was  preferable  to  adopt  a 
currency  fixed  from  the  beginning  at  a 
definite  relation  to  gold  or  to  saturate  the 
country  with  a  uniform  silver  currency  first 


A  Gold  Standard  for  China    191 

and  afterwards  take  steps  to  raise  it  by 
degrees,  by  Government  and  banking 
control  over  the  exchanges,  to  a  fixed 
gold  value.  The  former  plan  was  uni- 
formly presented  and  urged  by  the  Mexi- 
can and  American  Commissions,  and  the 
principle  was  indorsed  in  France,  Ger- 
many, and  Holland.  The  latter  plan  was 
considered  somewhat  more  practicable  in 
England  and  Russia. 

The  ultimate  decision  of  the  question 
will  undoubtedly  be  made  upon  the  ground 
in  China.  In  order  that  it  may  be  presented 
properly  to  the  Chinese  Government,  Pro- 
fessor Jenks,  a  member  of  the  American 
Commission,  is  in  China  bearing  creden- 
tials from  President  Roosevelt.  If  careful 
examination  shows  that  the  inauguration 
of  the  gold  standard  from  the  outset,  on 
the  basis  of  the  Philippine  currency,  is 
surrounded  by  too  many  difficulties,  then 
the  other  plan  may  be  considered  ;  but 
the  American  Commission  was  strength- 
ened rather  than  weakened  in  their  posi- 
tion by  the  discussions  which  took  place 
at  the  various  capitals.  They  strongly 


192    Wall  Street  and  the  Country 

believe  that  no  system  should  be  inaugur- 
ated in  China  which  does  not  provide  at 
the  outset  for  definite  steps  toward  giving 
the  currency  a  fixed  relation  to  gold.  It 
was  for  the  purpose  of  securing  stability 
of  exchange  that  they  were  appointed, 
and  that  purpose  they  have  steadily  kept 
in  view  in  their  discussions  with  the  rep- 
resentatives of  other  governments.  In 
any  case  they  have  the  full  approval  of 
every  leading  Power  for  presenting  to 
China  the  subject  of  giving  uniformity 
and  stability  to  her  currency  at  the  ear- 
liest practicable  moment. 

Subordinate  to  the  fundamental  propo- 
sition of  giving  stability  to  the  currency 
of  China  was  the  subject  of  approximate 
uniformity  in  the  currencies  of  other  ori- 
ental countries  and  dependencies.  The 
Mexican  and  American  Commissions  sug- 
gested that  the  silver  coins  to  be  issued 
in  oriental  countries  preparing  to  reor- 
ganize their  monetary  system  should  be 
issued  at  a  ratio  of  about  32  to  i.  This 
ratio  was  chosen  for  the  Philippines  be- 
cause it  corresponded  roughly  to  the  mar- 


A  Gold  Standard  for  China    193 

ket  price  of  silver,  but  left  a  sufficient 
margin  between  the  face  value  and  the 
bullion  value  of  the  new  coins  for  fluctua- 
tions in  the  price  of  the  metal. 

It  is  obvious  that  if  a  coin  were  adopted 
which  represented  the  gold  price  of  silver 
at  a  given  moment,  and  silver  should 
afterwards  rise  in  price,  the  silver  coins 
would  become  more  valuable  as  bullion 
than  as  coins.  They  would  go  to  the 
melting  pot,  and  the  country  would  be 
denuded  of  its  currency.  For  this  reason 
a  margin  of  about  15  per  cent  between 
the  bullion  value  of  the  coins  and  the 
value  given  them  by  law  was  adopted  in 
the  Philippines,  and  has  caused  no  diffi- 
culties in  the  acceptance  of  the  coins  at 
their  full  face  value.  The  Government 
of  Mexico  contemplates  a  similar  ratio, 
and  its  wisdom  was  approved  by  the  Gov- 
ernments of  Great  Britain  and  France, 
which  are  preparing  to  give  a  fixed  gold 
value  to  their  currencies  in  the  Straits 
Settlements  and  Indo-China. 

So  frequently  has  the  word  "ratio" 
been  used  as  a  part  of  the  nomenclature  of 


194    Wall  Street  and  the  Country 

bi-metallism  that  it  is  important  to  state 
that  it  is  not  used  in  such  a  relation  here. 
It  is  not  intended,  by  adopting  a  ratio  in 
China  or  the  Straits,  to  attempt  to  fix  the 
gold  price  of  silver  bullion  at  that  ratio. 
The  ratio  is  simply  a  relation  chosen  for 
convenience  between  the  weight  of  metal 
in  the  gold  unit  and  that  in  the  silver 
coins.  It  is  not  a  relation  of  value.  It  is 
in  the  power  of  governments,  within,  certain 
limits,  to  fix  the  value  of  coins,  not  of  com- 
modities. They  can  do  this  in  the  case  of 
coins  by  taking  into  their  own  hands  the 
control  of  the  supply  in  relation  to  the  de- 
mand, and  by  offering  to  take  care  of 
the  supply  when  it  exceeds  demand  by 
taking  it  from  the  holder  for  gold.  Only 
in  this  sense  has  a  ratio  been  recommended. 
Upon  the  relation  of  these  measures  to 
the  price  of  silver  bullion  it  is  proper  to 
say  a  word.  Misapprehension  has  arisen 
in  some  quarters  in  the  United  States 
upon  this  subject,  and  some  criticisms 
have  been  pronounced  upon  the  Mexican 
and  American  Commissions  on  the  ground 
that  they  were  trying  to  "  do  something 


A  Gold  Standard  for  China    195 

for  silver."  It  would  seem  that  the  pre- 
vious record  of  the  members  of  the  Ameri- 
can Commission  as  consistent  advocates 
of  the  gold  standard  should  have  protected 
them  from  the  imputation  of  such  absurd 
projects  as  were  occasionally  attributed  to 
them.  They  were  instructed  to  labor  to 
secure  stability  of  exchange  between  the 
gold  countries  and  the  silver-using  coun- 
tries. That  such  stability  could  be  se- 
cured permanently  by  any  other  means 
than  the  adoption  by  the  silver  countries 
of  the  gold  standard  was  never  for  a 
moment  contemplated. 

It  is  not  practicable,  in  the  opinion  of 
the  American  Commission,  to  seek  stabil- 
ity for  silver,  under  present  conditions, 
through  any  of  the  methods  pursued 
under  the  name  of  bimetallism.  All  that 
was  attempted  was  to  ask  those  govern- 
ments which  had  occasion  to  make  pur- 
chases of  silver  from  time  to  time  for 
their  subsidiary  currency  or  for  their  de- 
pendencies to  so  distribute  such  necessary 
purchases  in  regard  to  time  as  to  diminish 
the  irregularity  of  their  demands. 


196    Wall  Street  and  the  Country 

The  object  of  such  a  policy  would  not 
be  to  raise  the  price  of  silver,  but  simply 
to  average  the  price  by  averaging  the  pur- 
chases. Such  a  policy  could  not  be  counted 
upon  in  itself  to  prevent  the  downward 
course  of  silver  if  this  downward  course 
was  the  result  of  permanent  economic 
causes.  In  so  far  as  it  might  prevent  an 
abnormal  rise  at  one  time  and  an  abnor- 
mal fall  at  another,  producing  approxima- 
tion at  all  times  toward  the  mean  price 
instead  of  violent  movements  up  and 
down,  such  a  policy  would  contribute  pri- 
marily toward  the  stability  of  silver  bul- 
lion. What  is  much  more  important,  it 
would  contribute  toward  the  stability  of 
exchange  between  the  gold  countries  and 
the  silver-using  countries.  All  that  was 
suggested  on  this  point,  however,  was 
subsidiary  to  placing  China  upon  a  de- 
finite gold  basis.  The  views  of  the  Mexi- 
can and  American  Commissions  elicited 
at  every  capital  but  one  where  the  subject 
was  considered  the  cordial  approval  of  the 
foreign  commissions,  and  their  declaration 
that,  so  far  as  fiscal  conditions  permitted, 


A  Gold  Standard  for  China    197 


they  would  be  governed  in  future  by  the 
policy  of  regularity  of  purchases. 

The  ultimate  aim  of  the  project  of  put- 
ting China  and  other  silver-using  countries 
upon  the  gold  standard  is  to  promote  the 
commerce  of  the  world.  The  United 
States  are  interested  in  this  object  in  a 
particular  sense  and  in  a  general  sense. 
In  a  particular  sense  they  have  to  con- 
sider the  trade  of  the  Philippine  Islands 
with  China  and  with  other  silver-using 
countries  in  the  Orient.  The  trade  of  the 
Philippines  is  already  larger  with  gold 
countries  than  with  silver  countries,  be- 
cause the  gold  countries  include  British 
India,  Australia,  and  Japan,  from  whom 
are  bought  many  of  the  necessaries  of  life 
used  in  the  Philippines.  If  the  other 
countries  of  the  Orient,  including  not 
only  China,  but  the  English  and  French 
possessions,  go  upon  the  gold  standard, 
it  will  facilitate  the  trade  of  those  coun- 
tries with  the  Philippines  to  the  mutual 
benefit  of  all. 

It  is  in  the  broader  general  sense  of 
promoting  her  own  export  trade,  however, 


198    Wall  Street  and  the  Country 

that  the  United  States  is  perhaps  more 
keenly  interested  than  any  other  country, 
with  the  possible  exception  of  Great 
Britain,  in  giving  stability  to  exchange 
with  China.  How  important  is  stability 
of  exchange  in  promoting  trade  is  known 
best  to  those  merchants  who  have  suffered 
the  effects  of  fluctuation  in  wiping  out 
their  profits  and  driving  them  into  the 
dangerous  field  of  speculation  in  exchange. 
Between  two  gold-standard  countries  im- 
porter and  exporter  can  count  with  cer- 
tainty upon  getting  a  full  return  in  gold 
for  the  goods  which  they  sell.  In  trade 
between  gold  and  silver  countries  either 
the  exporter  from  the  gold  country  or  the 
importer  in  the  silver  country  runs  serious 
risk  of  finding  his  profits  wiped  out  by  a 
fall  in  the  gold  value  of  silver. 

If  a  consignment  of  merchandise  worth 
$1,000  in  gold  had  arrived  in  Shanghai 
in  July,  1902,  when  the  price  of  silver  was 
24T\d.  to  24T\d.,  it  would  have  brought 
in  silver  about  2310  Mexican  dollars.  A 
gold  bill  of  exchange  for  the  settlement 
of  the  invoice  would  have  cost  this  amount 


A  Gold  Standard  for  China    199 

to  the  Chinese  importer  or  to  the  foreigner 
carrying  on  import  business  in  China. 
Only  four  months  later,  in  November, 
1902,  silver  fell  to  a  minimum  of  2i1^d., 
and  it  would  then  have  cost  about  2700 
Mexican  dollars  to  buy  a  bill  of  exchange 
on  London  for  an  amount  sufficient  to 
settle  the  invoice.  If  the  importer  in 
China  had  in  the  meantime  sold  his  goods 
at  an  estimated  profit  of  10  per  cent  on 
the  silver  price  of  July,  he  would  have 
found  2540  Mexican  dollars  in  his  hands, 
or  less  by  160  dollars  than  the  amount  re- 
quired to  pay  his  invoice.  Thus,  he  would 
be  not  only  without  profit,  but  would  be 
a  heavy  loser  in  interest  on  his  money 
and  in  the  costs  of  distributing  his  goods. 
Such  conditions  can  only  tend  to  bring 
trade  to  a  standstill  and  to  force  both  the 
exporter  and  importer  to  live  from  hand 
to  mouth.  More  important,  perhaps,  with 
regard  to  the  ultimate  prosperity  of  both 
the  gold  and  silver  countries  is  the  effect 
of  unstable  exchange  upon  the  investment 
of  capital.  In  Mexico  it  is  estimated 
that  $700,000,000  of  American  capital  has 


200   Wall  Street  and  the  Country 

already  been  invested  for  the  extension  of 
railways,  the  development  of  mines,  and 
the  building  of  smelting  works  and  fac- 
tories. This  process  has  recently  been 
checked  by  the  fluctuations  in  the  gold 
value  of  silver. 

To  a  more  marked  degree  has  enter- 
prise been  checked  in  temporary  loans. 
Capital  in  Mexico  is  still  inadequate,  and 
a  Mexican  banker  can  loan  with  prudence 
large  sums  for  the  development  of  the 
country  at  from  8  to  10  per  cent.  There 
are  often  times  when  he  could  get  the 
money  in  Paris,  Brussels,  or  Berlin  at  3 
per  cent,  making  5  per  cent  or  more  by 
reloaning  it.  But  such  loans  must  be 
repaid  in  gold  within  a  short  period. 
When  the  fall  of  silver  within  four  months 
amounts  to  20  per  cent,  a  banker  who 
should  make  loans,  even  upon  the  best 
security  at  the  highest  rates,  would  be 
courting  ruin  in  borrowing  a  million  francs 
in  July  at  a  cost  of  460,000  Mexican  dol- 
lars in  silver,  to  repay  which  it  would  cost 
him  in  November  550,000  silver  dollars. 
His  profits  in  interest  in  six  months  would 


A  Gold  Standard  for  China    201 

be  11,250  silver  dollars;  his  loss,  by  the 
fall  of  exchange,  in  transferring  the  money 
back  to  Europe  would  be  90,000  silver 
dollars. 

Thus,  the  borrower  in  a  silver  country 
can  under  present  conditions  look  for  no 
aid  abroad.  The  promoter  of  new  enter- 
prises is  prevented  from  taking  any  steps 
to  develop  the  natural  resources  of  the 
country.  The  loss  is  perhaps  equally 
great  to  the  owner  of  capital  in  the  gold 
country,  who  could  himself  invest  at  a 
handsome  profit  in  loans,  in  bills  of  ex- 
change, and  in  the  shares  of  mines  and 
railways  in  Mexico  and  China,  if  he  could 
count  upon  a  safe  return.  The  rupture 
of  the  par  of  exchange  between  gold  and 
silver  countries  has  undoubtedly  done 
much  to  divide  the  world  into  two  halves, 
those  using  gold  and  those  using  silver. 
It  has  tended  to  congest  unused  capital 
in  the  rich  countries,  with  a  depressing 
effect  upon  rates  of  interest,  the  return 
upon  the  investments  of  widows,  orphans, 
and  those  who  hope  to  save  a  compe- 
tence for  old  age,  and  has  left  the  silver 


202    Wall  Street  and  the  Country 

countries  to  struggle  along  with  insuffi- 
cient means  for  developing  the  treasures 
of  nature  which  are  locked  in  their  soil. 

This  rupture  of  the  par  of  exchange  was 
always  one  of  the  strongest  arguments 
in  favor  of  international  bimetallism ;  but 
international  bimetallism  involved  too 
great  a  reversal  of  the  policy  of  the  gold 
countries  to  be  a  workable  remedy,  even 
if  it  were  in  any  sense  a  desirable .  one. 
The  Commission  on  International  Ex- 
change are  seeking  a  remedy  along  those 
lines,  which,  without  impairing  in  any 
way  the  gold-standard  system  of  the  ad- 
vanced countries,  will  make  possible  again 
the  free  flow  of  capital  and  enterprise  be- 
tween those  countries  and  the  undevel- 
oped countries,  whose  virgin  soil  needs 
their  touch  to  enter  upon  the  great  ca- 
reer of  economic  development  which  has 
marked  the  history  of  the  gold-standard, 
machine-using,  capitalistic  countries  dur- 
ing the  past  half  century. 

It  was  a  high  tribute  to  the  disin- 
terestedness of  the  United  States  that 
China  should  appeal  to  her  for  assistance 


A  Gold  Standard  for  China    203 

in  putting  her  monetary  system  on  a 
sound  basis.  If  Secretary  Hay  succeeds 
in  carrying  out  the  project  for  a  uniform 
monetary  system  in  China,  he  will  add 
another  shapely  stone  to  the  edifice  of 
diplomatic  triumphs  which  he  has  raised 
by  securing  the  open  door  and  protecting 
the  integrity  of  China. 

The  interest  of  Americans  in  China  is 
simply  to  find  wider  markets.  This  is 
an  interest  which  is  consistent  in  every 
way  with  the  progress  and  prosperity  of 
China.  Wide  markets  can  best  be  found 
by  increasing  the  purchasing  power  of  the 
Chinese  people.  Increased  purchasing 
power  is  the  result  of  increased  pros- 
perity, of  which  a  sound  currency,  as 
America  herself  has  found  to  her  cost,  is  a 
vital  element.  The  fact  that  the  United 
States  were  in  a  better  position,  perhaps, 
than  any  other  country  to  take  the  lead 
in  presenting  the  subject  to  China  was 
freely  acknowledged  at  many  European 
capitals.  It  is  to  be  hoped  that  the  op- 
portunity thus  opened  to  enhance  our 
national  prestige  as  well  as  to  increase 


204    Wall  Street  and  the  Country 

our  commerce  will  be  accepted  with  the 
same  foresight  and  enlightened  courage 
which  have  marked  the  other  measures  of 
our  policy  in  the  Orient. 


VI 

THE   GROWTH    OF    TRUST   COMPANIES 

THE  trust  company  is  essentially  an 
American  institution.  It  was  correctly 
declared  by  Mr.  Charles  F.  Phillips  at 
the  meeting  of  the  American  Bankers' 
Association  in  1902,  that, — 

"  in  the  strict  sense  of  the  term,  there  are  no 
trust  companies  in  Europe  or  the  Orient,  and 
none  in  the  Latin-American  countries,  barring 
the  Mexican  Trust  Company,  a  purely  Amer- 
ican foundation,  and  one  or  two  others,  all  in 
a  nascent  state  ;  nor,  so  far  as  I  am  aware,  have 
corporations,  anywhere  outside  the  United  States 
and  some  portions  of  Canada,  yet  undertaken 
to  do,  in  a  conjoint  and  aggregate  form,  any 
substantial  portion  of  the  work  which  is  cus- 
tomarily and  regularly  performed  by  the  trust 
companies  in  our  midst." 

The  growth  of  the  business  of  trust 
companies  during  the  last  few  years  has 
partaken  of  the  prosperity  which  has  come 
to  many  other  American  enterprises. 

205 


206    Wall  Street  and  the  Country 


This  is  plain  from  the  statistics  of  their 
numbers,  deposits,  and  resources,  as  re- 
ported to  the  Comptroller  of  the  Currency, 
and  set  forth  below  for  representative 
years: 

TRUST    COMPANIES   OF    THE   UNITED    STATES 


Year. 

Number. 

Capital. 

Individual 
deposits. 

1891.      . 

171 

$   79,292,889 

$     355,330,o8o 

1897  .      . 

251 

106,968,253 

566,922,205 

1901  . 

334 

137,361,704 

1,271,081,174 

1902  . 

417 

179,732,581 

1,525,887,493 

I903-      • 

53i 

232,807,735 

1,589,398,796 

Here  is  a  multiplication  within  twelve 
years  of  the  individual  deposits  of  trust 
companies  by  more  than  four  times,  or  an 
increase  of  more  than  300  per  cent.  Even 
within  the  brief  period  of  six  years  the 
increase  has  been  more  than  1 50  per  cent. 
The  total  resources  of  the  trust  companies 
of  the  State  of  New  York  were  $300,765,- 
575  on  January  i,  1892.  They  rose 
slowly  during  the  next  five  years  to  $396,- 
742,947  at  the  beginning  of  1897,  and  then 
went  up  by  bounds  to  $579,205,442  on 


Growth  of  Trust  Companies    207 


January  i,  1899,  $797»983>512  °r  J9Oi 
$969,403,91 1  for  1902,  and  $1,039,735,828 
on  January  i,  1904.  How  this  progress 
compares  in  New  York  City  with  that  of 
the  Clearing  House  banks  may  be  seen 
from  the  following  figures  of  individual 
deposits  : 

DEPOSITS   IN    NEW    YORK    CITY    BANKS 


June  26,  1897. 

June  30,  1902. 

Clearing  House 
Banks  

<&CQ7  IOO  OOO 

$060  24.6  OOO 

Trust  Companies. 

305,354,638 

760,776,124 

These  figures  show  that  while  the  de- 
posits of  the  Clearing  House  banks  of 
New  York  City  have  increased  about  40 
per  cent  in  five  years,  those  of  the  trust 
companies  have  increased  about  150  per 
cent.  Percentages  in  such  cases  are 
sometimes  deceptive.  The  trust  com- 
panies first  began  to  obtain  importance 
about  a  decade  ago,  and  it  is  not  sur- 
prising that  they  have  gained  ground 
rapidly  during  the  recent  period  of  indus- 
trial activity.  The  real  measure  of  their 


208    Wall  Street  and  the  Country 


progress  is  afforded  by  the  fact  that  while 
the  Clearing  House  banks  of  New  York, 
with  their  long-established  reputations  and 
great  resources,  have  in  five  years  increased 
their  deposits  about  $363,000,000,  the 
trust  companies  of  the  city  have  increased 
theirs  by  the  still  larger  sum  of  $455,000,- 
ooo.  Throughout  the  United  States  the 
business  of  the  trust  companies,  although 
their  form  of  organization  is  limited  to  a 
small  number  of  States,  has  shown  a  strik- 
ing growth.  The  deposits  of  all  national 
banks  and  trust  companies  reporting  to 
the  Comptroller  of  the  Currency  appear 
in  the  following  table  : 

INDIVIDUAL   DEPOSITS  IN   BANKS   OF    THE   UNITED 
STATES 


June  30,  1897 

June  30,  1903. 

National  Banks.  .  . 
State  Banks  

$1,770,480,563 

723.  640.70^ 

$3,200,993,509 
1.814.^70.161 

Loan  and  Trust 
Companies  

566,922,205 

i,589,398,796 

In  view  of  this  remarkable  exhibit  of 
the  growth  in  the  business  and  resources 


Growth  of  Trust  Companies     209 

of  trust  companies,  it  becomes  interesting 
to  inquire  what  are  these  institutions,  and 
what  is  the  nature  of  the  work  which  they 
are  doing.  Such  an  inquiry  naturally 
centres  around  the  answers  to  such  ques- 
tions as  these  : 

What  are  the  special  functions  of  trust 
companies  ? 

Wherein  do  these  functions  differ  from 
those  of  commercial  banks  ? 

Are  trust  companies  competing  unduly 
with  other  banks  ? 

Should  any  new  restrictions  be  imposed 
upon  the  organization  and  management 
of  trust  companies  ? 

In  answer  to  the  first  question,  it  may 
be  said  generally  that  the  functions  of 
trust  companies  are  to  execute  trusts  for 
individuals,  living  and  dead,  and  for  es- 
tates and  corporations. 

When  a  man  of  property  dies  in  the 
United  States  he  is  enabled  to  commit  to 
a  trust  company  the  often  complex  duties 
of  administering  his  estate,  instead  of  ap- 
pealing to  the  favor  of  relatives  or  friends. 
The  company  holds  a  copy  of  the  will, 


210    Wall  Street  and  the  Country 

sells  and  buys  property  under  orders  of 
the  courts,  collects  regularly  rents  for  real 
estate  and  dividends  on  securities,  and 
pays  such  dividends  over,  according  to 
the  terms  of  the  will,  to  the  legal  heirs. 
In  most  of  the  States  of  the  American 
Union  much  freedom  prevails  in  devising 
property  by  will.  A  husband  who  dis- 
trusts the  capacity  of  his  wife  or  children 
to  administer  their  property  with  prudence 
after  his  death  may  put  the  property  in 
the  hands  of  a  trust  company,  and  direct 
that  the  income  only  shall  be  paid  to  his 
heirs.  Widows  are  thus  guarded  against 
the  anxiety  and  loss  which  they  might 
suffer  if  they  undertook  to  administer 
the  property  for  themselves ;  improvident 
sons  are  prevented  from  squandering  the 
principal  of  their  estates ;  and  charitable 
bequests  and  other  public  benefactions 
are  carried  out  in  a  regular  and  lawful 
manner.  These  functions  are  the  same 
as  those  which  were  formerly  performed 
in  this  country,  and  are  still  performed 
abroad,  by  attorneys,  personal  friends  of 
the  deceased,  and  other  executors  and  ad- 


Growth  of  Trust  Companies    2 1 1 

ministrators ;  but  their  performance  by 
a  trust  company  according  to  prescribed 
methods  insures  greater  regularity  of  pro- 
cedure, and  in  many  cases  greater  safety, 
economy  in  management,  and  more  strict 
compliance  with  law. 

One  of  the  primary  advantages  of  com- 
mitting the  charge  of  estates  in  this  man- 
ner to  a  trust  company  is  that  its  life  is 
continuous,  and  its  responsibility  is  that 
of  a  corporate  body  of  large  resources  in- 
stead of  the  personal  liability  of  an  indi- 
vidual. It  is  a  peculiar  advantage  of 
employing  a  trust  company  in  the  man- 
agement of  estates  that  such  companies 
are  organized  especially  for  carrying  on 
this  class  of  business.  It  is  their  primary 
concern,  and  is  not  subordinate*  to  other 
interests,  as  is  sometimes  the  case  with 
individuals  having  other  occupations,  how- 
ever high  their  standing  and  strict  their 
probity.  The  trust  company  necessarily 
has  offices  devoted  exclusively  to  its  busi- 
ness, with  proper  vaults  for  keeping  securi- 
ties and  prescribed  methods  for  carrying  on 
each  branch  of  its  duties.  It  has  separate 


212    Wall  Street  and  the  Country 

accounts  for  each  trust,  it  has  books 
showing  when  the  interest  should  be  col- 
lected on  the  securities  held,  and  it  takes 
prompt  and  constant  notice,  through  its 
observations  of  the  stock  market,  of  influ- 
ences affecting  trust  funds  adversely,  which 
may  suggest  a  change  in  the  character  of 
investments. 

The  uniformity  of  methods  imposed  by 
law  and  by  financial  custom  upon  trust 
companies  leads  them  to  exercise  their 
functions  with  extreme  care.  A  trust 
company  is  not  likely  to  assume  responsi- 
bilities of  a  doubtful  character  without 
the  order  of  a  court,  careful  deliberation 
by  its  own  officers,  or  the  opinion  of  coun- 
sel. Some  of  the  ablest  financiers  and 
attorneys  of  the  United  States  act  as  ad- 
visers for  the  trust  companies  of  New 
York  and  other  large  cities.  Two  Secre- 
taries of  the  Treasury  have  become  heads 
of  New  York  trust  companies  on  leaving 
office, — Mr.  Charles  S.  Fairchild  of  the 
New  York  Security  and  Trust  Company, 
and  Mr.  Lyman  J.  Gage  of  the  United 
States  Trust  Company,  whose  offices  face 


Growth  of  Trust  Companies    213 

each  other  on  opposite  sides  of  Wall  Street. 
Secretary  Root  was  the  counsel  for  the 
Morton  Trust  Company  of  New  York 
before  he  became  head  of  the  War  De- 
partment, and  was  promptly  reinstated  in 
the  position  upon  his  return  to  private 
life.  Former  Vice-President  Morton  is 
its  president,  and  Mr.  Allen,  the  first  Civil 
Governor  of  Porto  Rico,  one  of  the  Vice- 
Presidents.  No  step  is  taken  involving 
an  important  question  of  law  without  the 
advice  of  men  of  this  character  as  execu- 
tive officers  and  counsel.  Their  ability 
and  researches  are  brought  to  bear  upon 
a  doubtful  question  affecting  a  small  es- 
tate in  the  same  manner  as  in  the  case  of 
a  large  estate,  because  of  the  importance 
to  the  company  of  deciding  correctly  the 
principle  involved. 

The  solvency  and  sound  management 
of  the  trust  company,  especially  in  such 
important  commercial  States  as  New 
York  and  Massachusetts,  are  insured  by 
the  rigid  system  of  inspection  provided 
by  the  laws  of  the  States.  All  the  books, 
papers,  memoranda,  and  cash  reserves  of 


Wall  Street  and  the  Country 


a  trust  company  in  the  State  of  New  York 
are  open  to  the  examination  of  State  offi- 
cials appointed  for  the  purpose,  at  any 
moment  and  without  notice. 

The  explanation  already  made  regard- 
ing the  functions  of  trust  companies  in 
relation  to  individuals  and  estates  answers 
to  a  considerable  extent  the  second  ques- 
tion. Wherein  do  trust  companies  differ 
from  commercial  banks  ?  The  advantages 
derived  by  an  individual  or  an  estate  from 
employing  a  trust  company  to  execute  im- 
portant trusts  naturally  commend  them- 
selves to  a  corporation  having  similar 
trusts  to  be  executed.  The  work  of  re- 
organizing old  corporations  and  organizing 
new  ones,  taking  up  old  securities  and  is- 
suing new,  which  has  been  made  necessary 
by  the  new  enterprises,  the  consolidations, 
and  the  "  mergers  "  of  the  last  few  years, 
has  fallen  in  a  large  measure  to  the  trust 
companies  of  New  York  and  one  or  two 
other  large  cities.  While  individuals  con- 
nected with  these  companies  have,  in  some 
cases,  been  active  in  initiating  these  pro- 
jects, the  companies  in  their  corporate 


Growth  of  Trust  Companies    215 

capacity  have  performed  merely  ministe- 
rial and  strictly  legal  duties  in  executing 
the  trusts  committed  to  them.  The 
stronger  trust  companies  of  New  York 
have  been  very  chary  of  committing  them- 
selves officially  to  new  flotations.  Some 
of  the  more  conservative  make  it  a  point 
not  to  float  shares,  however  good,  but 
limit  themselves  to  bonds,  which  have  pri- 
ority of  lien  upon  the  property  upon  which 
they  are  secured. 

The  national  banks  act  to  some  extent 
as  the  agents  of  corporations  in  the  mere 
transfer  of  the  ownership  of  securities  and 
the  payment  of  dividends.  In  the  case  of 
the  formation  of  a  new  corporation,  how- 
ever, or  an  important  change  in  the  char- 
acter of  the  securities  issued  by  an  old 
one,  a  trust  company  is  usually  chosen  as 
the  agent  in  the  transaction.  This  is  be- 
cause the  trust  companies  are  organized 
for  this  work,  have  officers  and  attorneys 
/  familiar  with  the  legal  points  involved, 
and  are  therefore  enabled  to  render  the 
service  with  economy,  precision,  and  the 
certainty  of  conforming  strictly  to  law. 


216    Wall  Street  and  the  Country 

The  New  York  law  regarding  the  incor- 
poration of  trust  companies  confers  these 
specific  powers,  among  others,  upon  such 
companies : 

1.  To  act  as  the  fiscal  or  transfer  agent  of  any 
State,  municipality,  body  politic,  or  corporation, 
and    in    such   capacity   to   receive    and   disburse 
money,  and  transfer,  register,  and  countersign  cer- 
tificates of  stock,  bonds,  or  other  evidences  of  in- 
debtedness. 

2.  To  receive  deposits  of  trust  moneys-,  secur- 
ities, and  other  personal  property  from  any  person 
or  corporation,  and  to  loan  money  on  real  or  per- 
sonal securities. 


4.  To  act  as  trustee  under  any  mortgage  or  bond 
issued  by  any  municipality,  body  politic,  or  cor- 
poration, and  accept  and  execute  any  other  muni- 
cipal or  corporate  trust  not  inconsistent  with  the 
laws  of  this  State. 

7.  To  take,  accept,  and  execute  any  and  all  such 
legal  trusts,  duties,  and  powers  in  regard  to  the 
holding,  management,  and  disposition  of  any  es- 
tate, real  or  personal,  and  the  rents  and  profits 
thereof,  or  the  sale  thereof,  as  may  be  granted  or 
confided  to  it  by  any  court  of  record,  or  by  any 
person,  corporation,  municipality,  or  other  author- 
ity; and  it  shall  be  accountable  to  all  parties  in 


Growth  of  Trust  Companies    2 1 7 

interest  for  the  faithful  discharge  of  every  such 
trust,  duty,  or  power  which  it  may  so  accept. 

If  a  railway  company,  for  instance, 
should  decide  to  substitute  new  securities 
for  old,  a  trust  company  would  naturally 
be  the  agent  chosen  as  the  intermediary 
in  the  transaction.  It  would  receive  the 
old  bonds  from  their  holders,  issue  receipts 
for  them,  and  later  issue  the  new  securities 
to  those  who  brought  back  their  receipts. 
If  money  were  to  be  paid  on  either  side, 
it  would  be  distributed  by  the  trust  com- 
pany. The  company,  acting  under  the 
best  legal  advice,  without  prejudice  to- 
ward either  party,  complying  strictly  with 
the  terms  of  the  agreement  as  interpreted 
by  the  most  competent  legal  talent,  thus 
acts  as  a  guardian  for  the  interests  of  the 
public  on  the  one  hand  and  the  corpora- 
tion on  the  other. 

The  peculiar  province  of  the  national 
banks  is  the  lending  of  their  deposits 
upon  commercial  paper  and  the  issue  of 
circulating  notes.  It  was  chiefly  for  the 
latter  purpose  that  they  were  originally 


218    Wall  Street  and  the  Country 

sanctioned  by  law,  much  as  this  function 
has  been  atrophied  by  a  clumsy  system  of 
security  for  note  issues.  How  different 
are  the  functions  of  the  national  banks 
from  those  of  the  trust  companies  may  be 
inferred  from  comparing  the  provisions  of 
the  New  York  law,  already  given,  with 
the  provisions  of  the  national  banking 
law,  that  a  national  bank  may  exercise — 

all  such  incidental  powers  as  shall  be  necessary 
to  carry  on  the  business  of  banking;  by  discount- 
ing and  negotiating  promissory  notes,  drafts,  bills 
of  exchange,  and  other  evidences  of  debt;  by  re- 
ceiving deposits;  by  buying  and  selling  exchange, 
coin,  and  bullion;  by  loaning  money  on  personal 
security;  and  by  obtaining,  issuing,  and  circulat- 
ing notes,  etc. 

The  powers  and  activities  of  the  two 
classes  of  corporations — trust  companies 
and  national  banks — trench  upon  each 
other  in  some  directions,  but  it  is  obvious 
that  each  has  separate  fields,  which  are 
not  likely  to  be  entered  by  the  other. 
The  field  in  which  the  competition  of  the 
trust  companies  with  national  banks  has 
attracted  the  most  attention  is  probably 


Growth  of  Trust  Companies    219 

the  acceptance  of  deposits  and  the  use  of 
these  deposits  in  the  loan  market.  The 
acceptance  of  deposits  by  trust  companies 
was  at  first  limited  largely  to  deposits 
which  were  not  likely  to  be  the  subject  of 
frequent  transactions.  In  many  cases  it 
was  specified  that  the  deposit  should  be 
left  in  the  hands  of  the  company  for  a 
fixed  time,  and  deposit  receipts  were  given 
instead  of  ordinary  pass  books. 

When  money  was  left  in  the  custody  of 
a  trust  company  under  these  conditions, 
such  large  provision  was  not  required  for 
reserves  as  in  the  case  of  money  subject 
at  any  time  to  be  withdrawn  by  checks. 
The  opportunity  for  its  continued  use  by 
the  trust  company  permitted,  moreover, 
the  payment  of  a  fair  rate  of  interest. 
Hence,  trust  companies  generally  paid  in- 
terest to  individual  depositors  ranging 
from  i  to  3  per  cent,  according  to  the  na- 
ture of  the  deposit.  This  policy  attracted 
large  deposits,  especially  from  trustees 
holding  funds  in  anticipation  of  some 
fixed  event  and  corporations  desiring  to 
keep  certain  cash  reserves  in  addition  to 


220    Wall  Street  and  the  Country 

their  current  working  accounts.  Grad- 
ually large  corporations,  discovering  the 
advantages  of  keeping  interest-bearing 
deposits  with  trust  companies,  increased 
the  amount  of  such  deposits  and  secured 
the  acceptance  of  active  accounts  at  a  less 
rate  of  interest  than  that  paid  on  the  more 
permanent  deposits.  The  trust  companies 
have  been  thus  placed  in  possession  of 
great  resources,  which  increase  their  abil- 
ity to  handle  conversion  projects  for  rail- 
way and  industrial  corporations,  and  afford 
them  a  considerable  fund  which  they  are 
able  to  utilize  in  short-term  loans. 

Most  of  these  loans  are  made  on  call, — 
that  is,  subject  to  repayment  whenever 
notice  is  given  to  the  borrower.  Accord- 
ing to  the  etiquette  of  New  York  trust 
companies,  a  mere  telephone  message  to 
a  borrower  is  sufficient  to  secure  the  re- 
payment of  a  loan  ;  but  it  is  a  matter  of 
banking  courtesy  that  such  messages  shall 
go  out  about  noon  in  order  to  give  the 
borrower  an  interval  before  the  close  of 
banking  hours  to  transfer  his  loan  to  an- 
other bank  or  company  or  find  the  money 


Growth  of  Trust  Companies    221 

to  pay  it  off.  The  greatest  conservatism 
is  shown  by  the  best  New  York  companies 
in  making  these  stock  loans.  They  allow 
a  margin  of  about  20  per  cent  between 
the  market  value  of  the  securities  and  the 
amount  loaned.  They  are  far  from  accept- 
ing as  collateral  for  loans  all  the  classes  of 
securities  which  are  on  the  market.  In 
most  cases,  moreover,  a  variety  of  securi- 
ties is  required  to  protect  each  loan,  so 
that  a  shrinkage  on  one  would  be  covered 
by  the  solidity  of  those  remaining.  It  has 
been  declared  by  officers  of  leading  New 
York  trust  companies  that  not  a  dollar 
has  been  lost  by  them  upon  these  secured 
stock  loans. 

The  trust  companies  differ  from  the  na- 
tional banks  in  the  character  of  the  loans 
made.  They  trench  little  upon  the  field 
of  the  national  banks  in  discounting  the 
paper  of  merchants  based  upon  mercan- 
tile transactions.  This  is  a  very  impor- 
tant field  of  banking,  has  a  close  relation 
to  the  volume  of  currency  required  by 
trade,  and  is  the  field  which  the  national 
banks,  when  they  were  first  authorized, 


222     Wall  Street  and  the  Country 

were  expected  to  occupy.  The  larger 
portion  of  national  banking  business  is 
still  of  this  sort,  and  it  has  grown  greatly 
within  the  past  five  years.  There  has 
undoubtedly  been  a  feeling  here  and 
there,  however,  that  the  national  banks, 
since  the  rise  of  the  trust  companies, 
were  relatively  losing  deposits  and  losing 
their  share  in  the  large  operations  which 
some  of  the  trust  companies  have  found 
so  profitable.  It  may  be  said  on  this 
head  that  as  much  depends  upon  the  per- 
sonality of  the  banker  as  upon  the  form 
of  banking  organization. 

If  a  few  captains  of  finance  in  New 
York  have  shown  peculiar  capacity  for 
drawing  to  certain  trust  companies  a 
large  volume  of  business,  it  is  highly 
probable  that  the  same  men  would  have 
accomplished  similar  results  through  a 
State  bank,  a  national  bank,  or  a  private 
corporation,  if  the  trust-company  organ- 
ization had  not  been  directly  open  to 
them  by  law.  It  is  no  secret  among  in- 
telligent bankers  that  the  trust  companies 
which  have  made  the  largest  profits  have 


Growth  of  Trust  Companies    223 

not  derived  those  profits  from  the  mere 
routine  of  banking.  Trust-company  profits 
have  been  derived  largely  from  the  skill 
of  their  officers  in  financing  important 
combinations  and  aiding  in  the  creation  of 
new  enterprises.  It  requires,  however, 
high  reputation,  great  prudence,  and  large 
capital  to  succeed  in  such  projects,  and 
some  of  the  mushroom  companies  which 
sprang  into  existence  under  the  fostering 
sunlight  of  prosperity  are  not  finding  the 
business  so  easy  and  profitable  as  they 
anticipated. 

A  trust  company  is  better  fitted  by  law 
and  by  the  nature  of  its  organization  for 
work  of  this  character  than  a  national 
bank.  A  national  bank  has  imposed 
upon  it  the  function  of  safeguarding  the 
currency.  It  is  forbidden  to  intrust  more 
than  one-tenth  of  its  capital  to  any  single 
person,  firm,  or  corporation.  Its  resources 
must  be  kept  in  such  condition  that  they 
can  be  turned  into  money  on  the  shortest 
possible  notice.  The  same  is  true  of  such 
trust  companies  as  pay  their  deposits  on 
demand,  but  the  trust  companies  hold 


224    Wall  Street  and  the  Country 

many  large  deposits  nominally  subject  to 
payment  on  demand,  but  which  they  know 
are  not  likely  to  be  called  for.  If  a  few 
drafts  are  made  upon  such  deposits,  they 
have  ample  resources  for  meeting  them 
in  their  cash  deposits  with  the  national 
banks. 

The  subject  of  bending  the  trust  com- 
panies to  the  same  rules  as  those  which  gov- 
ern the  New  York  Clearing  House  banks 
has  been  more  or  less  discussed  since  the 
growth  of  the  trust  companies  has  made 
them  an  important  factor  in  the  banking 
resources  of  New  York.  One  of  the  pro- 
positions which  has  been  most  seriously 
discussed  has  been  that  the  trust  com- 
panies should  be  required  to  keep  some- 
thing like  the  same  cash  reserves  as  the 
national  banks.  The  national  banks  of 
New  York  are  required  by  law  to  keep  in 
currency  an  amount  equal  to  25  per  cent 
of  their  deposits,  and  the  State  banks 
which  are  members  of  the  Clearing  House 
are  compelled  to  conform  to  the  same 
rule.  The  state  of  this  cash  reserve,— 
whether  there  is  a  large  surplus  reserve, 


Growth  of  Trust  Companies    225 

or  whether  it  is  near  the  legal  minimum, 
—is  one  of  the  barometers  of  New  York 
money-market  conditions  which  always 
receives  the  most  attentive  study  at  home 
and  abroad.  The  trust  companies  have 
heretofore  kept  such  reserves  as,  in  the 
opinion  of  their  officers,  were  required  to 
meet  demands  upon  them  ;  but  they  have 
in  most  instances  kept  the  bulk  of  these 
reserves  on  deposit  in  national  banks.  A 
check  upon  a  national  bank  deposit  is 
usually  more  acceptable  to  one  of  their 
clients  in  a  large  transaction  than  would 
be  a  roll  of  bills  or  a  keg  of  gold.  For 
smaller  demands  from  their  clients  for 
pocket  money  the  trust  companies  keep 
such  cash  on  hand  as  they  find  necessary, 
but  they  have  fewer  active  accounts  of  this 
sort  than  the  national  banks,  and  few  large 
demands  are  made  upon  them  for  actual 
currency . 

The  national  banks  of  the  cities  enjoy 
an  important  privilege  which  is  not  granted 
to  the  trust  companies.  Outside  of  New 
York,  the  national  banks  are  permitted  to 
deposit  one-half  or  more  of  their  reserve 


226    Wall  Street  and  the  Country 


in  the  national  banks  of  New  York,  and 
to  count  such  deposits  as  cash  on  hand. 
An  enormous  volume  of  such  deposits  is 
carried  by  the  national  banks,  and  they 
have  greatly  increased  within  ten  years, 
as  may  be  seen  by  the  following  table : 

OBLIGATIONS     OF      NATIONAL      BANKS      TO      OTHER 
BANKS 


Date. 

To  national 
banks. 

To  State  and  pri- 
vate banks  and 
trust  companies. 

uly  12,  1892.      . 
uly  23,  1897  .      . 
uly  15,  1901  . 
uly  16,  1902.      . 
[une  9,  1903.     . 

$367,143,324 
388,117,906 

645,038,393 
626,954,587 

627,514,736 

$188,683,254 
208,876,900 
526,151,801 
582,102,814 
551,286,533 

It  is  obvious  from  these  figures  that  the 
national  banks  have  profited  greatly  within 
the  past  five  years  in  their  command  over 
the  resources  of  their  fellows  in  the  national 
banking  system,  and  that  they  have  had 
voluntarily  intrusted  to  them  a  large 
share  of  the  cash  of  the  State  banks  and 
trust  companies.  It  is  naturally  contended 
on  behalf  of  the  trust  companies  that  they 


Growth  of  Trust  Companies    227 

should  not  be  burdened  with  any  such  re- 
serve requirements  as  are  imposed  upon 
the  national  banks,  unless  they  are  granted 
the  privilege  of  receiving  the  deposits  of  the 
national  banks  of  the  country,  and  the  lat- 
ter are  permitted  to  count  such  deposits  as 
a  part  of  their  lawful  reserves. 

The  officers  of  the  stronger  trust  com- 
panies would  probably  be  glad  to  comply 
with  the  requirement  that  they  should  keep 
a  reasonable  reserve  in  proportion  to  their 
deposits.  Such  a  requirement  would  be 
rigidly  complied  with,  and  if  it  imposed 
burdens  upon  the  weaker  companies  which 
wiped  out  their  slender  profits,  it  would 
not  be  a  source  of  regret  to  the  stronger 
companies  to  see  establishments  driven 
from  the  field  which  may  not  be  hardy 
enough  to  weather  financial  storms. 

A  reserve  of  15  per  cent  of  deposits 
would  be  more  than  sufficient  to  meet  all 
possible  demands  upon  the  trust  com- 
panies, and  at  least  half  of  this  reserve, 
if  not  two-thirds,  might  properly  be  kept 
on  deposit  in  national  banks.  Fifteen  per 
cent  of  $1,589,398,796, — the  deposits  of 


228    Wall  Street  and  the  Country 

the  trust  companies  of  the  United  States 
in  1903, — would  be  about  $238,000,000. 
The  trust  companies  actually  had  due  to 
them  from  other  banks  $252,837,891, — 
an  amount  more  than  sufficient  to  meet  a 
15  per  cent  reserve  requirement,  They 
had  also  cash  to  the  amount  of  $49,082,- 
628, — about  3  per  cent  of  their  deposit 
obligations.  The  requirement  that  they 
should  keep  1 5  per  cent  in  currency  locked 
up  in  their  own  vaults  would  mean  that 
they  should  withdraw  nearly  $  1 89,000,000 
from  other  banks  and  practically  with- 
draw that  much  money  from  the  use  of 
the  market. 

Several  of  the  strongest  trust  companies 
in  New  York  already  meet  the  require- 
ment that  they  shall  keep  a  reserve  equal 
to  15  per  cent  of  their  deposits,  but 
keep  most  of  it  in  other  banks.  Thus,  on 
January  i,  1904,  the  Morton  Trust  Com- 
pany, with  deposits  of  $40,100,261,  had 
on  deposit  in  banking  institutions  subject 
to  check  $15,231,384  ;  the  Mercantile 
Trust  Company,  with  deposits  of  $48,669,- 
720,  had  on  deposit  $10,883,938;  the 


Growth  of  Trust  Companies    229 

Farmers'  Loan  and  Trust  Company,  with 
deposits  of  $49,683,643,  had  on  deposit 
$5,906,440,  and  also  the  considerable  sum 
of  $2,809,220  in  cash ;  while  the  New 
York  Security  and  Trust  Company,  with 
deposits  of  $29,942,949,  had  on  deposit 
with  banks  $4,495,639. 

The  second  of  the  requirements  sug- 
gested— that  a  trust  company  should  keep 
one-third  or  one-half  of  its  reserve  in  its 
own  vaults — could  not  be  enforced,  ex- 
cept after  long  previous  notice,  without 
serious  effects  upon  the  money  market. 
With  total  deposits  in  New  York  City  at 
the  beginning  of  1904  amounting  to  about 
$570,000,000,  a  reserve  of  15  per  cent 
would  be  about  $85,000,000,  half  of  which 
would  be  about  $42,500,000.  The  total 
reserves  of  the  trust  companies  in  the  city 
of  New  York  at  that  date  were  $124,854,- 
495,  but  of  this  amount  only  $19,822,407 
was  in  currency  in  their  hands.  In  order 
to  comply  with  a  requirement  for  a 
1 5  per  cent  reserve,  kept  entirely  in  cash, 
it  would  be  necessary  to  withdraw  more 
than  $65,000,000  in  currency  from  actual 


230    Wall  Street  and  the  Country 

use  and  lock  it  up  in  gold,  silver,  and 
greenbacks  in  the  vaults  of  the  trust 
companies. 

Fears  have  sometimes  been  expressed 
that  the  keeping  of  trust-company  re- 
serves on  deposit  in  national  banks,  in- 
stead of  in  actual  currency  in  their  own 
vaults,  tended,  along  with  other  recent 
developments,  to  rear  a  structure  of  credit 
too  lofty  for  the  slender  foundation  of 
currency  at  its  base.  Comparison  with 
the  British  system,  however,  is  distinctly 
favorable  to  the  solidity  of  conditions  in 
New  York.  The  reserves  of  the  New 
York  Clearing  House  banks  for  the  week 
ending  June  18,  1904,  were  $319,373,000. 
This  reserve  is  distributed  among  fifty- 
nine  different  institutions,  and  the  pro- 
portion of  reserve  is,  on  the  whole,  much 
larger  than  that  held  under  the  monetary 
system  of  Great  Britain. 

In  London  the  reserve  in  actual  cash  is 
held  entirely  by  the  Bank  of  England. 
Other  banks  content  themselves  with 
keeping  in  their  own  custody  only  such 
little  cash  as  may  be  required  for  daily 


Growth  of  Trust  Companies    231 

retail  needs,  known  as  "till  money."  The 
joint-stock  banks  keep  deposits  with  the 
Bank  of  England,  and  the  private  and 
country  banks  keep  deposits  with  the 
joint-stock  banks.  The  system  thus  de- 
pends absolutely  upon  the  solidity  of  a 
single  institution — the  Bank  of  England. 
The  British  system  has  the  advantage  of 
economy  in  the  use  of  money,  but  the 
American  system  is  more  exacting  in  its 
safeguards.  As  the  London  Statist  re- 
marked in  the  spring  of  1902  :  "  Were  the 
New  York  banks  permitted  to  work  with 
as  small  a  margin  of  actual  cash  against 
liabilities  as  we  do  in  this  country,  they 
would  be  able  to  greatly  increase  their 
loans  and  their  deposits." 

How  far  the  demand  for  arbitrarily 
fixed  reserves  is  a  matter  of  sentiment 
was  shown  by  the  effect  of  the  action  of 
Secretary  Shaw  in  the  autumn  of  1902 
in  seeking  to  relieve  the  pressure  on 
the  money  market.  By  a  stroke  of  his 
pen  he  decided  that  he  would  permit 
national  banks  to  hold  deposits  of  gov- 
ernment funds,  without  keeping  against 


232     Wall  Street  and  the  Country 

such  deposits  the  reserves  of  15  per  cent 
or  25  per  cent  required  against  other  classes 
of  deposits.  By  this  measure,  it  was  an- 
nounced, the  loaning  power  of  the  banks 
would  be  increased  by  about  $130,000,000. 
It  is  obvious  that,  from  the  standpoint  of 
sound  banking,  the  banks  were  no  stronger 
after  this  announcement  than  before.  If 
they  needed  a  25  per  cent  reserve  against 
gross  deposits,  the  Secretary  was  wrong 
in  suspending  the  requirement ;  if  they 
did  not  need  it,  the  public  was  wrong  in 
feeling  alarm  when  reserves  against  gross 
deposits,  before  the  Secretary's  action, 
fell  below  25  per  cent. 

The  true  banking  rule  is  that  a  bank- 
ing institution  shall  pay  legal -tender 
money  upon  its  deposit  and  note  obliga- 
tions whenever  such  money  is  demanded, 
whether  its  reserve  be  one  per  cent  or 
100  per  cent.  The  bank  answers  with  its 
life  for  its  ability  to  do  this,  and  the  neces- 
sity that  it  shall  live  exerts  a  more  con- 
stant and  potent  pressure  upon  its  officers 
than  the  requirement  that  unused  money 
shall  be  piled  up  in  reserve  funds.  In  the 


Growth  of  Trust  Companies    233 

national  banking  system,  with  its  hun- 
dreds of  banks  of  small  capital  scattered 
over  forty-five  States,  legal  regulation  of 
reserves  is  a  matter  of  prudence  and  pub- 
lic convenience.  In  some  of  the  States 
such  regulation  may  be  justified  upon  the 
same  grounds,  but  it  is  necessary  in  in- 
verse ratio  to  the  degree  of  financial 
progress  of  the  community  and  the  im- 
portance of  the  stake  of  its  financial  lead- 
ers in  the  soundness  and  solvency  of  their 
enterprises. 

If  a  specific  reserve  requirement  is 
necessary  for  the  prudent  conduct  of 
trust  companies  or  the  safety  of  the 
market,  it  should  be  imposed.  It  is  ob- 
vious, however,  that  it  could  not  be  com- 
plied with  suddenly  without  causing  a 
convulsion  in  the  money  market  This 
was  recognized  by  the  Committee  of  the 
New  York  Clearing  House  in  their  de- 
mand, in  the  spring  of  1903,  that  trust 
companies  enjoying  the  privileges  of  the 
Clearing  House  should  accumulate  re- 
serves in  actual  cash  of  10  per  cent. 
Only  2^  per  cent  was  required  before  June 


234    Wall  Street  and  the  Country 

i,  1903  ;  2\  per  cent  more  before  Febru- 
ary i,  1904;  and  5  per  cent  more,  mak- 
ing the  total  of  10  per  cent,  before  June  i, 
1904.  Such  an  increase  of  reserves  could 
not  be  accomplished  under  the  most 
favorable  circumstances  except  at  consid- 
erable cost,  which  would  not  fall  upon  the 
trust  companies,  but  upon  the  public. 
The  community  would  be  deprived  of  the 
use  of  $50,000,000  of  its  working  capital 
or  be  compelled  to  import  that  siim  to 
make  good  the  amount  withdrawn  from 
active  use.  It  would  amount  practically 
to  setting  aside  and  locking  up  that  much 
gold,  to  lie  idle  or  to  be  used  only  in 
great  emergencies,  like  those  for  which  the 
war  treasure  of  $30,000,000  is  so  sacredly 
guarded  by  the  German  Emperor  in  the 
fortress  of  Spandau. 

If  the  privileges  enjoyed  by  either 
the  national  banks  or  the  trust  compa- 
nies involve  danger  or  disadvantage  to 
the  community,  or  if  they  threaten  to 
drive  one  class  of  institutions  out  of  ex- 
istence, they  should  be  restricted.  The 
national  banks  and  the  trust  companies, 


Growth  of  Trust  Companies    235 

however,  while  they  trench  to  some  ex- 
tent on  each  other's  fields,  each  has 
functions  to  perform  which  differ  from 
those  of  the  other.  It  would  be  ex- 
tremely harmful  to  chain  either  class  of 
institutions  upon  a  Procrustean  bed  of 
regulations  or  burdens,  suited  perhaps 
to  one  and  not  suited  to  the  other.  The 
national  banking  law  could  probably  be 
amended  to  advantage  in  a  direction 
which  would  give  greater  scope  to  the 
national  banks  in  doing  business ;  but  it 
would  be  a  step  in  the  wrong  direction 
to  extend  the  restrictions  imposed  upon 
them,  if  they  have  been  found  burden- 
some, to  a  class  of  institutions  which 
have  contributed  so  much  as  the  trust 
companies  to  the  industrial  triumphs  of 
America  in  recent  years. 


INDEX 

Agriculture,  Department  of,  crop  figures,  57 

Allen,  Charles  H.,  213 

America,  opportunity  for  advancement  in,  63 

Anglo-Saxon  peoples,  their  conservative  tendencies,  41 

Argentine  Republic,  railway  equipment,  133 

Austria,  land  mortgage  bank,  20;  postal  statistics,  154 

Bank  of  England,  management  of  its  metallic  reserve, 

31;    issue  of  uncovered  notes,    185;    custodian  of 

British  banking  reserve,  231 

Banking  consolidation,  how  it  has  prevented  panic,  34 
Banking  extension,  139 
Banking  power  of  Great  Britain,  141 ;  of  United  States, 

142 

Banks  have  avoided  early  blunders,  30 
-*•'  Bears,"  their  function  in  the  stock  market,  in 
Belgium,  draws  food  supplies  from  without,  119;  postal 

statistics,  154;  telegraph  service,  157 
Betting  on  stocks  does  not  occur  on  stock  exchanges,  84 
Bimetallism,  benefits  in  maintaining  par  of  exchange, 

202 

Bonds  have  a  prior  lien  over  preferred  stock,  49 
British- India,  manner  in  which  the  gold  standard  is 

maintained,  183 

Brokers,  how  they  protect  consumer,  100 
"  Bucket   shops,"   radically   different   from   stock  ex-* 

changes,  85 
Business  interests,  their  willingness  to  make  sacrifices, 

80;  delicacy  of  experimenting  with,  81 

237 


238  Index 

Call  loans,  method  of  making  them  in  New  York,  220 

Capital,  growth  of  Jthe  investment  fund,  4;  amount 
employed  in  manufactures,  6;  effect  of  an  excess 
supply,  7 ;  effect  in  promoting  consolidations,  2 1 ; 
importance  of  directing  in  proper  channels,  37; 
movements  determined  by  competition,  54;  given 
mobility  by  the  stock  exchanges,  89;  how  it  is 
directed  in  profitable  channels,  93 ;  total  amount  in 
the  United  States,  158 

Chase,  Salmon  P.,  ill-advised  demand  upon  New  York 
banks,  80 

Chicago,  freight  rates  to  New  York,  136 

China  and  the  gold  standard,  171;  influence  of  railways 
in  creating  demand  for  money,  173;  absence  of 
national  currency,  174;  joins  Mexico  in  appeal  to  the 
United  States,  177;  defects  of  present  standard,  1 78 ; 
attitude  of  the  foreign  banks,  180;  how  the  gold 
standard  can  be  established,  183;  limitation  of  the 
coinage,  184;  acceptance  of  currency  for  public  dues, 
1 86;  creation  of  an  exchange  fund,  188;  presenta- 
tion of  plan  to  European  powers,  1 90 ;  adoption  of  a 
common  ratio,  194;  effects  of  silver  fluctuations  on 
commerce,  199;  interest  of  the  United  States  in  a 
stable  standard  for  China,  203 

China,  railway  extensions  in,  173 

Church  property  confiscated  in  France  and  Mexico,  61 

Clearing?  one  of  the  aspects  of  future  delivery,  104 

Clearing  house  banks  of  New  York,  increase  of  de- 
posits, 207 

Clearing  house  statistics,  143 

Coal,  reduction  of  price,  137 

Colonial  products,  increased  consumption  in  Great 
Britain,  166 

Commerce,  increase  in  the  i9th  century,  1 23 ;  increased 
by  railway  equipment,  131 

Commercial  loans  protected  by  stock  market,  106 


Index  239 

Common  stock  not  suitable  for  trust  funds,  5 1 

Competition,  character  changed  by  railway  extension, 
118 

Consolidations,  influences  by  which  brought  about,  22; 
became  an  imitative  mania,  25;  caused  by  compe- 
tition, 25 

Consols,  the  refunding  of  1888,  10;  decline  in  value  in 
1899,  24 

Consumer,  how  his  interests  differ  from  those  of  in- 
vestor, 44;  would  not  be  benefited  by  extreme 
measures,  62;  cannot  fail  to  obtain  some  share  of 
improvements,  68 

Corporation  laws,  subject  of  improvement,  78 

Corporations,  should  be  subject  to  legal  regulation,  45 ; 
doubtful  whether  time  is  ripe  for  new  federal  legisla- 
tion, 79 

Credit,  modern  forms  of  organization,  14;  effect  of  its 
extension,  144 

Credit  Fancier,  success  in  France,  20 

Currency,  safe-guarded  by  national  banks,  223;  with- 
drawn from  use  by  excessive  reserve  requirements,  228 

Delivery  not  necessary  to  a  legitimate  transaction,  100 
Deposits,  increase  in  the  United  States,  218;  character 

of  those  in  trust  companies,  219 
Diaz,  Porfirio,  reforms  achieved  in  Mexico,  176 
"Discounting"  events  on  the  stock  exchanges,  95 

Economic  education,  importance  to  investors,  69 
Econontiste  Europten,  statistics  of  railway  equipment, 

132 
Egypt,  mortgage  loan  bank  in,  19;  railway  equipment, 

i33 

English  companies  acts,  severe  character  of,  71 
Europe,  changes  in  population,  121;  increase  in  steam 

power,  126;  recent  increase  in  railway  mileage,  132 


240  Index 

Exchange  profits  resulting  from  fluctuations  of  silver, 

178 
Exports  from  the  United  States,  159 

Fairchild,  Charles  S.,  212 

Falkner,  Roland  P.,  investigation  on  wages  and  prices, 

163 

Farmers,  their  disadvantages  without  organized  mar- 
kets, 97 

Farms  in  United  States,  135 

Federal  control  of  corporations,  arguments  in  its  favor, 
70;  danger  of  inviting  corruption,  72;  danger  of  its 
perversion,  76 

Foreign  trade  of  the  United  States,  159;  of  Great 
Britain,  160 

France,  Bank  of,  total  payments  into,  143 

France,  debt  conversion  of  1894,  n;  absence  of  two 
forms  of  stock,  18;  mortgage  loan  banks,  19;  effect 
of  official  certificates  regarding  foreign  corporations, 
48;  law  regarding  securities  of  foreign  corporations, 
60 ;  benefits  of  securities  in  paying  the  war  indemnity, 
1 08;  decline  in  relative  political  power,  122;  increase 
in  steam  power,  126;  increase  in  railway  mileage, 
131;  postal  statistics,  154;  telegraph  service,  156 

Franco- Russian  War,  effect  on  French  stock  market, 
109 

Gage,  Lyman  J.,  212 

Gambling  not  the  function  of  stock  exchanges,  87 

German-Asiatic  Bank,  attitude  towards  the  gold 
standard  for  China,  180 

Germany,  mortgage  loan  banks  in,  20;  receives  war 
indemnity  from  France,  109;  increase  in  railway 
mileage,  132;  organization  of  stock  companies  after 
1872,  150;  postal  statistics,  154;  telegraph  service,  156 

Giffen,  Robert,  views  on  changes  in  population,  122 

Gold  money  of  the  world,  140 


Index  241 


Gold  production,  139 

Gold  standard,  method  of  introducing  it  into  China,  182 

Government  debts,  first  form  of  negotiable  securities, 
146 

Great  Britain,  refunding  consolidated  debt,  10;  draws 
food  supplies  from  without,  119;  organization  of 
new  stock  companies,  148;  postal  statistics,  153;  tele- 
graph service,  155;  foreign  trade,  160 

Greenback  issues,  injurious  effect  upon  wages,  163 

Hanna,  Hugh  H.,  appointed  member  of  Commission  on 

International  Exchange,  177 
Hongkong  and  Shanghai  Bank,  attitude  towards  gold 

standard  for  China,  180 

Indo-China,  Bank  of,  attitude  toward  the  gold  standard 
for  China,  180 

Industrials,  recent  fall  in,  23 

Insurance  afforded  by  produce  exchanges,  101 

Interest  rate,  tendency  to  decline,  9 

International  exchange,  appeal  of  Mexico  to  China 
and  the  United  States,  177;  appointment  of  Ameri- 
can Commission,  177;  their  visit  to  Europe,  180; 
seek  uniformity  in  coinage  ratio,  192;  attitude  in 
regard  to  silver,  194 

International  Statistical  Institute,  estimate  of  ne- 
gotiable wealth  of  Europe,  148 

Investments,  elements  operating  upon  their  numbers, 
7 ;  value  of  bonds  and  preferred  stock,  1 7 

Investor,  importance  of  distinguishing,  from  consumer, 
43 ;  already  protected  by  State  law,  47 ;  impossible 
to  protect  against  ignorance,  48;  should  seek  se- 
curity, 50 

Iron  and  steel  production,  134 

Italy,  tax  upon  5  per  cent,  bonds,  61. 

Japan,  crisis  of  1901,  107;  railway  equipment,  133 


242  Index 

Jenks,  Jeremiah  W.,  appointed  member  of  Commission 
on  International  Exchange,  177 

Labor  released  for  higher  employments  by  machinery, 
1 68 

Laborers,  increase  in  wages,  162 

Leroy-Beaulieu,  Paul,  opinion  on  interest  rates,  10; 
statistics  of  railway  mileage,  132 

Letters  mailed,  in  Great  Britain  and  Ireland,  152; 
in  the  United  States,  153;  in  France,  154;  in  Bel- 
gium, 154;  in  Germany,  154 

Limited  liability,  advantages  of  the  principle,  145 

London,  clearing  operations,  143 

London  Stock  Exchange,  number  of  securities  quoted 
on,  146 

London  reserve  system,  230 

Machinery  works  revolution  in  industry,  117;    releases 

labor  for  higher  employments,  168 
Manufactures,  amount  of  capital  employed,  6 
Margins,  unwarranted  speculation  in,  5 1 
Markets,  importance  of  their  organization,  88;    made 

general  by  railway  extension,  119 
Massachusetts,  rigid  control  of  trust  companies,  213 
Meade,    Edward    S.,    opinion    on   interest    rates,    12; 

points  out  importance  of  promoter,  37 
Mexican  silver  dollar,  its  use  in  China,  174 
Mexico,  railway  equipment,  133;    appeals  to  China  to 

check  fluctuations  in  exchange,  175;  recognizes  evils 

of  silver  standard,  176;    seeks  to  put  China  on  the 

gold  standard,  177;    difficulty  of  employing  foreign 

capital,  200 

Mollien  defends  "short"  selling,  112 
Money  market,  protected  by  the  stock  market,  105 
Money  supply  of  the  world,  140 
Moniteur  des  InitrGts  Matiriels  gives  statistics  of  new 

securities,  148 


Index  243 

Morgan,  J.  Pierpont,  resists  "strike"  suits,  75 
Mortgage  bonds,  value  as  investments,  16 
Mortgage  loan  banks,  success  in  Europe,  19 
Morton,  Levi  P.,  213 

Napoleon  I.,  criticism  of  short  selling,  in 
National  banks,  increase  in  deposits,  208 ;  wherein  they 
differ  from  trust  companies,  214;   their  powers,  218; 
engaged  in  discounting  commercial  paper,  221;   de- 
posits with  other  national  banks,  226 
Netherlands,  manner  of  maintaining   gold    standard, 

183 

Newcomb,  Henry  T.,  statistics  of  railway  charges,  130 
New  York,  freight  rates  from  Chicago,  136;    clearing 

operations  at,  143;  statistics  of  trust  companies,  206; 

rigid  control  of  trust  companies,  213 
New  York  banks,  sacrifices  for  the  Union  in  1861,  80 
New  York  Clearing  House,   reserve  requirements  of 

trust  companies,  233 
New  York  money  market,  speculation  on  borrowed 

money  in,  52 

Operating  companies,  principle  involved,  32 

Paris  Stock  Exchange,   number  of  securities  quoted 

on,  146 

Philippine  Islands,  gold  fund  established,  188 
Philips,   Charles  F.,   statement  regarding  trust  com- 
panies, 205 

Population  of  Europe  in  igth  century,  121 
Post-office  Department,  significance  of  frauds  upon,  74 
Postal  statistics,  of  Great  Britain,  152;  of  the  United 
States,    153;   of  France,  154;  of  Belgium,    154;  of 
Germany,  154 

Postal  Telegraph  Company,  increase  of  its  service,  155 
Prices  decline  while  wages  have  risen,  165 
Produce  exchanges,  effect  of  abolishing,  97 


244  Index 


Production,    left   without   control   by  socialism,   116; 

greatly  increased  by  machinery,  125 
Professional  classes,  increase  in  numbers,  168 
Promoter,  his  importance  to  society,  36 
Prussia,  debt  conversion  of  1897,  10 
Publicity,  its  object,  55;  extent  under  English  law,  56; 

would  not  benefit  speculators,   56;    importance  in 

stock  quotations,  92 

Railway   bonds,    decline   in   interest   rate,    12;     have 

reached  a  solid  investment  basis,  30 
Railway  carriage,  reduction  of  charges,  130;   economy 

caused  by,  134 

Railway  construction,  its  economic  effect,  171. 
Railways,  increase  of  capital  and  funded  debt,  6 ;  early 

errors  in  financing,  29;    increase   in    i9th   century, 

131 

Ratio  for  new  silver  coinage,  192;  explanation  of  the 
term,  194 

Rome,  disastrous  effects  of  concentrated  power,  73; 
effect  of  corn  grants,  77 

Roosevelt,  Theodore,  opinion  on  government  interven- 
tion, 53;  gives  credentials  to  Professor  Jenks,  191 

Root,  Elihu,  counsel  for  Morton  Trust  Co.,  213 

Russia,  increase  in  railway  mileage,  132;  organization 
of  new  stock  companies,  151 

Russo-Chinese  Bank,  attitude  towards  gold  standard 
for  China,  1 80 

Savings,  effect  upon  organization  of  capital,  1 2 
Securities,  tendency  of  saving  to  produce  new  forms,  1 5 ; 
volume  recently  thrown  on  market,   21;    excessive 
issues  in  recent  years,  23;    their  value  fixed  on  the 
exchanges,  90;   annual  issues  in  Europe,  148 
Security-holding  company,  principle  involved,  32 
Shaw,  Leslie  M.,  changes  reserve  requirements,  231 
"Short"  selling,  defended  by  Mollien,  112 


Index  245 

Siberia,  railway  construction  in,  171 

Silver,  effects  of  its  fluctuations  on  Chinese  trade,  175; 
attitude  of  the  American  Commission,  184;  how 
fluctuations  may  destroy  profits,  198 

Smith,  Adam,  opinion  on  joint  stock  companies,  28 

Socialism,  defective  as  a  means  of  distributing  capital, 
114 

Spandau,  Germany  war  treasure  at,  234 

Specie  payments  cause  an  advance  in  gold  wages,  164 

Speculation  should  be  discouraged,  51;  difficulty  of 
checking,  57;  influence  upon  consumption,  99;  re- 
strained by  "  short  "  selling,  112 

State  interference  usually  not  creative,  65 

State  laws,  how  they  restrict  corporations,  45 

Statist  (London),  opinion  of  early  American  railways, 
29;  comparison  of  bank  reserves,  231 

Steam  engines,  increase  in  power  after  1850,  126 

Steel  production,  134 

Stock  companies,  new  organizations  in  Great  Britain, 
149;  in  Germany,  150;  in  Russia,  151 

Stock  exchanges,  create  a  market  for  properties,  14; 
their  functions,  83;  sensitiveness  to  world- wide  in- 
fluences, 94;  benefits  of  discounting  future  events, 
96;  act  as  a  form  of  insurance,  101;  protect  the 
money  market,  104;  act  as  buffer  in  international 
values,  1 06  ;  influence  of  "short"  selling  on,  112  ; 
bring  values  to  a  level,  113  ;  determine  distribution 
of  capital,  114 

Stock,  preferred,  value  as  investment,  1 7 

Sugar,  increase  in  consumption  in  Great  Britain,  166 

Tariff  barriers  abolished  in  Mexico,  176 

Tea,  increased  consumption  in  Great  Britain,  166 

Telegraphic   service,   in   Great    Britain,    155;    in   the 

United  States,  155;  in  France,  156;  in  Germany,  156; 

in  Belgium,  157;  total  mileage  for  the  world,  157 


246  Index 

Tobacco,  increased  consumption  in  Great  Britain,  166 
Treasury  notes  received  for  customs  dues,  186 
Trust  companies,  stimulus  given  to,  creating  new  ones, 
26;  have  avoided  early  blunders,  30;  form  of  or- 
ganization not  known  abroad,  205 ;  growth  in  the 
United  States,  206;  comparison  with  national  banks, 
208;  functions  as  trustees,  210;  advantages  of  con- 
tinuous life,  21 1 ;  uniformity  of  methods,  212;  con- 
trolled by  rigid  inspections,  214;  authority  under 
New  York  law,  216;  act  as  transfer  agents,  217; 
relation  to  national  banks,  218;  reasons  for  their 
success,  222 

Trust  company  reserves,  why  they  should  be  less  than 
national  bank  reserves,  224;  effect  of  large  reserve 
requirements,  227 ;  actual  reserves  held  by  New  York 
banks,  228;  danger  of  withdrawing  currency  from 
use,  229;  comparison  with  British  system,  230; 
true  rule  of  reserves,  232;  demands  of  the  New 
York  Clearing  House,  234 

Trusts,  importance  of  accurate  definition,  40;  ad- 
vantage of  corporate  management,  210 

United  Kingdom,  change  of  political  power,  122 

United  States,  decline  of  interest  rate,  1 1 ;  increase  in 
steam  power,  126;  increase  in  railway  mileage,  131; 
increase  of  farms,  135;  telegraph  service,  155;  total 
wealth,  158;  exports  of  manufactures,  159;  policy 
in  the  Orient,  203 

United  States  Steel  Corporation,  number  of  stock- 
holders, 21 ;  character  of  its  reports,  56;  effect  of 
resisting  "strike"  suits,  75 

United  States  steel  production,  135 

Values  cannot   be  permanently  altered  by  manipula- 
tion, 88 
Voting  trust  prevents  railway  wrecking,  34 


Index  247 

Wages,  increase  since  the  Revolutionary  period,  162; 
purchasing  power  raised  by  resumption  of  gold  pay- 
ments, 164 

Wall  Street,  the  mirror  of  values,  i ;  its  views  not  wel- 
comed, 71 

Washington,  danger  of  giving  control  over  corpora- 
tions, 73 

Western  Union  Telegraph  Co.,  increase  of  its  service, 

155 

Wheat,  cost  of  carriage,  136 
Wright,  Carroll  D.,  views  on  increase  of  steam  power 

127;  investigation  of  wages,  162 


SOUND  MONEY 


THIRTY  YEARS  OF  AMERICAN  FINANCE.  A  Short  Finan- 
cial History  of  the  Government  and  People  of  the  United 
States.  1865-1897.  By  ALEXANDER  DANA  NOYES. 
i2mo $i  25 

"As  a  narrative  it  is  admirably  clear  and  concise.  Equally  admirable 
is  the  temperate,  conservative,  and  modest  presentation  of  the  author's 
opinions  and  judgment.  The  book  will  be  indispensable  to  all  students  of 
the  subject." — WILLIAM  T.  FOLWELL,  Professor  of  Political  Science,  Uni- 
versity of  Minnesota. 

MONETARY  PROBLEMS  AND  REFORMS.  By  CHARLES  H. 
SWAN,  JR.  (No.  91  in  Question  of  the  Day  Series.) 
8vo  $  75 

"Mr.  Swan's  discussion  of  the  subject  is  clear,  concise,  and  sound,  and 
constitutes  a  valuable  addition  to  the  literature  of  the  subject." — St.  Louis 
Globe-Democrat. 

THE  NATURAL  LAW  OF  MONEY.  The  successive  steps  in 
the  growth  of  Money  traced  from  the  days  of  Barter  to  the 
Introduction  of  the  Modern  Clearing-house,  and  Monetary 
Principles  examined  in  their  relation  to  Past  and  Present 
Legislation.  By  WILLIAM  BROUGH.  12 mo,  cloth,  $i  oo 

"The  author's  style  is  clear  and  concise,  and  he  gives  a  great  deal  of 
valuable  information  well  adapted  to  the  understanding  of  the  general  reader 
in  a  brief  compass." — Boston  Saturday  Eve.  Gazette. 

A  HISTORY  OF  MONEY  AND  PRICES.  Being  an  Inquiry 
into  their  Relations  from  the  Thirteenth  Century  to  the 
Present  Time.  By  J.  SCHOENHOF,  author  of  "The  Econ- 
omy of  High  Wages,"  etc.  (No.  86  in  the  Questions  of  the 
Day  Series.)  i2mo $i  50 

"  Mr.  Schqenhof's  book,  '  Money  and  Prices,'  is  a  positive  and  most  valu- 
able contribution  to  economic  literature,  inasmuch  as  it  supplies,  in  a  clear 
and  popular  manner,  just  the  information  necessary  for  the  formation  of 
correct  opinions  respecting  the  vexed  problem  of  prices,  and  especially  re- 
specting their  relation  to  monetary  changes.  The  examination  ought  to  be 
more  an  essential  of  every  high  educational  system." — DAVID  A.  WBLLS. 

PRINCIPLES  AND  PRACTICE  OF  FINANCE.  A  Practical 
Guide  for  Bankers,  Merchants,  and  Lawyers,  together  with 
a  Summary  of  the  National  and  State  Banking  Laws,  and 
the  Legal  Rates  of  Interest,  Tables  of  Foreign  Coins,  and 
a  Glossary  of  Commercial  and  Financial  Terms.  By  ED- 
WARD CARROLL,  JR.  8vo,  cloth  .  .  .  $i  75 

"Mr.  Carroll's  volume  aims  to  be  a  practical  guide  for  bankers,  mer- 
chants, and  lawyers,  and  certainly  does  give  a  great  deal  of  information 
which  they  ought  to  know.  .  .  .  It  is  refreshing  to  get  a  book  on  finance 
which  is  not  given  up  to  the  discussipn  of  the  writer's  personal  views  on  the 
current  questions  of  financial  agitation.  .  .  .  These  subjects  will  soon 
fail  to  interest,  for  in  the  nature  of  things,  they  will  soon  be  settled.  They 
are  too  practical  to  remain  open.  But  Mr.  Carroll's  volume  will  be  valuable 
long  after  those  matters  have  been  disposed  of.  It  is  well  written,  and  the 
index  makes  it  a  convenient  book  of  reference." — Chicago  Inter-Ocean. 


NEW  YORK  G.  P.  PUTNAM'S  SONS  LONDON 


SOUND  MONEY. 

THE  SILVER  SITUATION  IN  THE  UNITED  STATES.  By 
F.  W.  TAUSSIG,  LL.B.,  Ph.D.,  Professor  of  Political  Economy  in 
Harvard  University ;  author  of  *'  The  Tariff  History  of  the  United 
States. "  (No.  74  in  the  Questions  of  the  Day  Series.)  Second  Edition. 

Revised  and  enlarged.     8vo,  cloth $     75 

"  We  do  not  hesitate  to  say  that  this  book  is  in  all  respects  as  excellent  as  it  is  oppor- 
tune. It  is  extremely  concise  in  statement,  and  deserves  to  be  read  by  the  learned  as  well 
as  by  the  ignorant,  while  the  times  should  insure  it  the  widest  circulation." — New  Yrrh 
E.vtning  Post. 

CORPORATION  FINANCE.  By  THOMAS  L.  GREENE,  Auditor  of 
the  Manhattan  Trust  Co.  A  Study  of  the  Principles  and  Methods  of 
the  Management  of  the  Finances  of  Corporations  in  the  United  States, 
with  special  reference  to  the  valuation  of  corporation  securities.  8vo, 

$i  25 

"  The  author's  practical  and  theoretical  knowledge  has  enabled  him  to  prepare  an  in- 
structive book,  useful  alike  to  the  student  at  college  and  the  every-day  man  of  affairs.  He 
writes  in  a  careful,  discriminating  way,  is  conservative  in  expression  and  views,  and  does 
not  aim  at  effects,  but  presents  his  statements  and  arguments  in  a  plain,  straightforward 
way.  We  imagine  few  competent  critics  will  take  issue  with  him  on  any  material  points 
in  his  discussions."—  The  Financial  Chronicle. 

REAL  BI-METALLISM  ;  or,  True  Coin  versus  False  Coin.  A  Les- 
son for  "  Coin's  Financial  School."  By  EVERETT  P.  WHEELER,  author 
of  "  The  Modern  Law  of  Carriers."  (Question  of  the  Day  Series,  No. 
84.)  Illustrated.  Paper,  40  cts.  ;  cloth  ....  $  75 

"  Mr.  Wheeler  has  a  firm  and  comprehensive  grasp  of  his  subject,  and  in  a  few  com- 
pact chapters  he  lays  bare  '  Coin's'  sophistries  and  misstatements,  and  effectually  demon- 
strates the  folly  and  danger  of  independent  free  silver  coinage  at  the  present  ratio." — 
Commercial  Advertiser  ^  New  York. 

A  HISTORY  OF  MODERN  BANKS  OF  ISSUE.  With  an  Ac- 
count  of  the  Economic  Crises  of  the  Present  Century.  By  CHARLES  A. 
CONANT.  8vo $3  oo 

"We  can  only  express  our  hearty  appreciation  of  the  book  as  a  whole.  It  is  ex- 
tremely interesting.  It  cannot  but  be  useful,  and  to  us  it  is  very  cheering.  Mr.  Conant's 
book,  from  beginning  to  end,  is  a  proof  that  sound  currency  is  evolved  necessarily  from 
the  progress  of  an  industrial  and  commercial  people.  We  have  unhesitating,  unfalterinc 
faith  in  the  progress  of  the  people  of  our  country  in  industry  and  commerce,  and  that 
sound  currency  will  therefrom  be  evolved."— A7.  Y.  Times. 

THE  HISTORY  OF  CURRENCY  (1252  to  1894).  Being  an  Ac- 
count of  the  Gold  and  Silver  Monies  and  Monetary  Standard  of  Europe 
and  America  together  with  an  Examination  of  the  Effects  of  Currency 
and  Exchange  Phenomena  on  Commercial  and  National  Progress  and 
Weil-Being.  By  W.  A.,  SHAW  M.  A.  8vo  .  .  .*  net  $3  75 

"  The  present  bimetallic  controversy  has  given  birth  to  nothing  more  profound  and 
convincing.    .     .    .     Mr.  Shaw's  work  possesses  a  permanent  historical  interest  far 
ceoding  the  present  battle  of  the  standards."— N.  Y.  Nation. 


G.  P.  PUTNAM'S  SONS 

NEW   YORK  AND  LONDON 


RETURN    CIRCULATION  DEPARTMENT 

TO—  +>    202  Main  Library 

LOAN  PERIOD  1 
HOME  USE 

2 

3 

4 

5 

6 

ALL  BOOKS  MAY  BE  RECALLED  AFTER  7  DAYS 

Renewals  and  Recharges  may  be  made  4  days  prior  to  the  due  date. 

Books  may  be  Renewed  by  calling        642-3405 

DUE  AS  STAMPED  BELOW 


FORM  NO.  DD6 


UNIVERSITY  OF  CALIFORNIA,  BERKELEY 

BERKELEY,  CA  94720 

®$ 


u.c. 


LIBRARY  USE 

RETURN  TO  DESK  FROM  WHICH  BORROWED 

LOAN  DEPT. 

THIS  BOOK  IS  DUE  BEFORE  CLOSING  TIME 
ON  LAST  DATE  STAMPED  BELOW 


LIP.?  W  USE 

MAP./—  5      • 

RF;  I  ;  ^ 

MR  2  8  '65-8  P 

....       - 

LD  62A-50m-2,'64 
(E3494slO)94J2A 


General  Library 

University  of  California 

Berkeley 


